The widely followed MSCI Emerging Markets Index is up year-to-date, but the 8.6% gain for that benchmark (as of June 2) isn’t enough for investors to be fawning for developing economies.
However, things are more interesting in frontier markets, including Vietnam. Take the case of the VanEck Vectors Vietnam ETF (VNM). The lone U.S.-listed exchange traded fund dedicated to Vietnamese equities is higher by 13.3% year-to-date as stocks there are among the region’s top performers. Some market observers believe more upside is on the way.
“Despite Vietnam’s latest wave of Covid-19, the country’s benchmark index is the region’s top performer with a 21% gain this year. Analysts say it has further to run,” reports Nguyen Kieu Giang for Bloomberg. “The Vietnam Ho Chi Minh Stock Index could rise as much as 12% more to 1,500 points by the end of the year, analysts say.”
Familiar Catalysts for VNM, Vietnamese Stocks
At a time when meme stocks, such as GameStop (NYSE:GME) and AMC (NYSE:AMC), are garnering plenty of attention in the U.S., it’s clear retail investors are making their presence felt. That’s the case in Vietnam too, where, as Bloomberg notes, retail investors remain devoted to their local market despite a recent uptick in coronavirus cases.
The article doesn’t mention local investors’ sector preferences. The $548 million VNM holds 30 stocks – a combined 70.8% of which hail from the real estate, technology, consumer staples, and consumer discretionary sectors, according to VanEck data.
That gives VNM a mix of cyclical value and growth exposure. Speaking of value, Vietnamese stocks trade at just 15x earnings, slightly below the ratio of 16x on the MSCI Asia Pacific Index, according to Bloomberg.
As noted above, Vietnam is classified as a frontier market and it’s the largest geographic exposure at almost 20% in the MSCI Frontier and Emerging Markets Select Index. VNM is trailing that index this year, but investors shouldn’t fret about that scenario. Of the benchmark’s other top 10 country weights, seven are big-time energy producers and several are members of the Organization of Petroleum Exporting Countries (OPEC), indicating the benchmark is catching a bid from rising oil prices. Vietnam isn’t a major energy producer.
Still, reasons remain to consider VNM and Vietnamese equities. As cited by Bloomberg, Stephen McKeever, head of the institutional client division at Ho Chi Minh City Securities Corp., says earnings in the Southeast Asian nation could jump a whopping 30% this year. Additionally, foreign direct investment in the country is rising and Vietnam is one of the preferred destinations for global investors mulling exposure to smaller developing economies.
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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.