Some frontier markets and the related exchange traded funds have not joined their emerging markets peer to the upside this year. The Market Vectors Vietnam ETF (NYSEArca: VNM), which is off 7% year-to-date, is an example of that trend.
However, there is at least one potential catalyst that could help VNM reverse course for the better: Infrastructure spending. Vietnam has enjoyed robust growth as investments and exports help support the economy. The country has brought in over 2,000 greenfield FDI projects between 2003 and 2014 as companies capitalized on the abundant and relatively cheap labor.
The Vietnamese government has also implemented reforms to attract investments. For instance, the country has cut corporate tax rate to 22% from 25%.
“In 2015, Vietnam climbed nine notches on World Bank’s ranking of infrastructure development index and the construction output value grew 11.4% year-over-year. Construction, building materials and industrial zone developers will be the biggest beneficiaries of this story. The government is emphasizing transport and power projects,” according to a RongViet Securities note posted by Dimitra DeFotis of Barron’s.
[related_stories]In 2014, Vietnam formed a commission to explore taking the necessary steps for the country to shed its frontier status and gain entry into the widely followed MSCI Emerging Markets Index.MSCI does not have Vietnam on its list of markets that could potentially be upgraded to emerging markets status. When the index provider recently revealed its annual market classification, Pakistan was the only frontier market highlighted as being a potential candidate for promotion to the MSCI Emerging Markets Index.
“Local logistics providers, despite their small market shares, can still gain greatly from such expansion whereas Northern seaport operators should enjoy higher revenue growth in the near term as demand outpaces supply. … [for the]textile-garment sector, increasing competition from bigger and more resourceful players from mainland China, Hong Kong and Taiwan will put a cap on sales growth,” adds RongViet in the note posted by Barron’s.
Market Vectors Vietnam ETF
