Don't Overlook This Good News for the Vietnam ETF | ETF Trends

Like so many international equity ETFs, the VanEck Vectors Vietnam ETF (NYSEARCA: VNM) experience a rough first quarter as the lone ETF dedicated to stocks in the Southeast Asian economy slumped more than 34%.

However, some good news could be in store for VNM, meaning investors that have been quick to dismiss the fund because of the first-quarter swoon may want to consider revisiting this product.

VNM seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Vietnam Index. The index includes securities of Vietnamese companies. A company is generally considered to be a Vietnamese company if it is incorporated in Vietnam or is incorporated outside of Vietnam but has at least 50% of its revenues/related assets in Vietnam.

In a report released Tuesday after the close of U.S. markets, index provider FTSE Russell said it’s mulling an upgrade of Vietnam’s market classification.

Why It’s Important

“Vietnam was added to the Watch List in September 2018 for possible reclassification to Secondary Emerging market status. FTSE Russell continues to engage with the Vietnam market authorities as they implement reforms aimed at developing the capital market,” said the index provider. “Vietnam is retained on the Watch List as a Frontier market and will be reviewed for possible reclassification as a Secondary Emerging market, within the FTSE Country Classification scheme at the Annual Review in September 2020.”

Translation: there’s a possibility that, at some point, Vietnam could be classified as a proper emerging market, which could qualify the country’s equities for inclusion in major benchmarks, such as the FTSE Emerging Markets Index. That’s the same index that’s tracked by the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). That’s relevant because VWO is the largest emerging markets ETF.

While Vietnam’s equity market remains small and VNM reflects that status with high concentration to the financial services and real estate sectors, the economy there is evolving. While Vietnam is currently classified as a frontier market, its economic growth has long outpaced that of the average emerging market.

“The FTSE Equity Country Classification process involves the assessment of markets against 21 criteria, known as the FTSE Quality of Markets matrix,” said FTSE Russell. “These criteria are regularly reviewed and in January 2020, several changes were introduced. A full explanation of these changes, which have not resulted in country classification changes at the March interim review.”

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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.