For all the talk about equity weakness in various developing economies this year, there are some pockets of strength, too.
Consider Vietnamese stocks and the VanEck Vectors Vietnam ETF (VNM). The lone Vietnam exchange traded fund is higher by more than 20% year-to-date, comfortably outpacing the MSCI Emerging Markets Index.
To be fair, Vietnam is currently classified as a frontier market, and VNM is slightly trailing the MSCI Frontier and Emerging Markets Select Index, of which Vietnamese stocks are members. However, the modest lag by VNM relative to that index is impressive when considering the frontier markets benchmark is heavy on major oil-producing nations, of which Vietnam is not one. That could be a sign that VNM is poised for another solid showing in 2022.
“Known for its relatively young population and strong manufacturing sector, the country has been a primary beneficiary of increased globalization, with multiple international free trade agreements with global trade blocs,” says Nicolas Fonseca, VanEck associate portfolio manager. “Economic growth, a burgeoning middle class and attractive stock market returns have made Vietnam an attractive investment for foreign investors.”
Home to nearly $585 million in assets under management, VNM turns 13 years old next August. The fund follows the MVIS Vietnam Index. Due to the small size of Vietnam’s equity market, VNM’s underlying index allots for companies that derive at least 50% of revenue in the country, in addition to firms based there.
Combined, the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) are homes to just 760 stocks — far fewer than what investors find in markets like the U.S. and China. However, that’s just a number, and what’s important is market capitalization expansion, which Vietnam is delivering.
“The stock market capitalization of listed domestic companies as a percent of GDP increased rapidly from 12.5% in 2008 to 69.6% in 2020, according to the World Bank,” notes Fonseca.
No guarantees, but a catalyst that could emerge for VNM in 2022 is Vietnam finally gaining the long-coveted emerging markets promotion. It’s something the government there wants, and if attained, it’d almost certainly spark VNM higher.
“The Vietnamese government has been keen on pushing for that transition as it already meets some of the criteria for being an emerging market and continues working on attracting foreign capital to maintain its long-term growth. The government expects to be upgraded to emerging market status by 2025 and has been actively cooperating with global index providers to find a solution for a possible upgrade, as it is the largest market within the frontier market universes and one of the best structural growth stories,” concludes Fonseca.
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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.