The VanEck Vectors Vietnam ETF (VNM) gained 22%, making it one of the best-performing single-country exchange traded funds while easily topping the MSCI Emerging Markets Index.
Past performance isn’t a guarantee of future returns, but Vietnam is home to one of the best-performing markets in Asia over the past decade, and some market observers believe that this will remain the case this year as exports rebound.
“Vietnam’s recovery is set to gather momentum in 2022, as domestic demand rebounds and export performance remains strong,” notes Fitch Ratings. “Improving levels of vaccination should reduce the risk that the recovery is set back by further Covid-19 outbreaks. However, the evolution of the pandemic remains subject to uncertainties, in particular as daily cases have trended higher in recent months.”
The $547.6 million VNM, which follows the MVIS Vietnam Index, has some exposure to Vietnam’s export story. Equally as important, the fund could benefit as GDP growth in the Southeast Asian nation rises.
“Economic growth in 2021, at 2.6%, was much weaker than the 7% that we had expected in April 2021, when we affirmed Vietnam’s rating at ‘BB’ and revised the Outlook to Positive, from Stable. This partly reflected a 6% yoy contraction in real GDP in 3Q21, as the authorities moved to control a surge in Covid-19 cases,” adds Fitch.
VNM allocates 30% of its combined weight to the two consumer sectors — staples and discretionary — indicating that the ETF is positioned to benefit from an uptick in domestic consumption, which could be powered by rebounding GDP.
Providing support for a GDP recovery in Vietnam is the government’s changing policy on dealing with the coronavirus pandemic. As vaccination rates increased, policymakers there abandoned the “zero COVID” effort, indicating that if an uptick in cases materializes, an economic shutdown is unlikely.
“We expect growth to accelerate to 7.9% in 2022 and 6.5% in 2023 as the recovery becomes established. This partly reflects the low base set in 2021. Vietnam has also had less economic scarring than many emerging markets, as it is one of the few countries that did not experience an annual contraction in GDP amid the pandemic shock,” says Fitch.
The ratings agency also notes that non-performing loans could decline this year as economic growth improves — an important factor for VNM investors because the VanEck ETF devotes 12.3% of its weight to the financial services sector.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
