In what has been a mostly solid year for emerging markets equities, the VanEck Vectors Vietnam ETF (NYSEArca: VNM) is a laggard with a year-to-date loss of 2.5%.
As is often the case with the lone exchange traded fund dedicated to Vietnamese equities, market observers see both potential and reasons for concern with VNM.
While Vietnam is a communist country, the government has steered toward a quasi-free market economy that is strictly controlled by the state.
For instance, the government is setting a stronger tone to support private businesses over the next five years, Bloomberg reports. Vietnam’s 2016 to 2020 economic blueprint will create “favorable conditions” to support private companies.
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“Vietnam has an ambitious 6.7% growth target for the year, which they admit will be hard to achieve. However, they write that authorities’ focus on macroeconomic stability is an encouraging sign, even if it comes at the expense of a rapid acceleration of growth,” reports Teresa Rivas for Barron’s citing HSBC.
[related_stories]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%.
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“These are difficult times for Vietnam. The worst drought in three decades has wreaked havoc on agricultural output, and the global economy is full of uncertainty. As a result, 2Q16 GDP was softer-than-expected, and the economy is likely to miss the government’s annual growth target of 6.7% for 2016. But we find cause for optimism in the coming quarters. The GDP report showed other key sectors such as manufacturing and services still performing robustly, and there are signs they will continue to hold up in the coming quarters,” according to part of the HSBC note posted by Barron’s.
For more information on Vietnam ETFs, visit our Vietnam category.
VanEck Vectors Vietnam ETF
