The VanEck Vectors Vietnam ETF (NYSEArca: VNM) could snap out of its lengthy slumber as Hanoi takes steps to further open its markets to foreign investors.
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%.
Vietnamese “lenders surged on Tuesday after Prime Minister Nguyen Xuan Phuc said offshore ownership caps would be raised from the current level of 30 percent as early as this year. The government may exit completely from some troubled banks, Phuc said in an interview with Bloomberg Television in Hanoi on Friday, without saying what the new limit would be,” reports Giang Nguyen for Bloomberg.
A rally in Vietnamese banks is impactful for VNM because the lone Vietnam ETF allocates over 22% of its weight to financial services stocks, its largest sector allocation.
Further opening banks to foreign investors could bolster Vietnam’s efforts to earn a promotion to emerging markets status. The country is currently classified as frontier market by major index providers.
Vietnam is lifting foreign ownership limits because it is angling for a coveted but rare promotion to emerging markets status from the frontier markets classification from index provider MSCI.
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.
“The move will be “very positive” for the stock market and will support Vietnam’s efforts to be included in MSCI Inc.’s emerging-market index, said Andy Ho, chief investment officer at VinaCapital Group, the nation’s largest fund manager,” in an interview with Bloomberg.
Vietnam previously lifted foreign ownership limits on other sectors, including consumer groups, which combine for over a third of VNM’s roster.
For more information on Vietnam ETFs, visit our Vietnam category.