Vietnam ETF Could Be Single-Country Winner | ETF Trends

In quiet fashion, Vietnamese stocks are surging this year. Using the VanEck Vietnam ETF (VNM) as the measuring stocks, Vietnamese equities are outperforming both the MSCI Frontier Markets Index and the MSCI Emerging Markets Index.

Stocks from the Southeast Asian nation reside in the first index, but the country’s long-running goal is to earn a promotion to the MSCI Emerging Markets Index. Even without emerging markets status, it’s clear that there’s opportunity with VNM and Vietnamese stocks. Plus, frontier market classification isn’t the negative some investors perceive it to be. Dragon Capital, one of Vietnam’s largest equity fund managers, pointed out that Vietnamese stocks have positive liquidity attributes.

“In addition, despite being classified as a frontier market, Dragon’s analysis reveals that Vietnam has stronger equity market liquidity than many emerging markets with average daily turnover of US$843m in June 2023,” noted the money manager. “This compares to US561m for Indonesia; US$262m for Malaysia and US$69m for the Philippines which all have emerging market status.”

Vietnam: Small but Mighty Market

Vietnam isn’t a large market in terms of market capitalization. That much is reflected in a weighted average market value of $4.4 billion (mid-cap territory) for VNM holdings and the point that all of the ETF’s components are classified as mid- or small-cap stocks.

Dragon Capital pointed out that as of the end of the second quarter, Vietnamese stocks’ combined market value was $246 billion. That’s smaller than many S&P 500 members, but it’s also larger than the total market caps on stocks in Kuwait, the Philippines, and Poland. Those factors imply ample room for growth. Fortunately, the Vietnam growth outlook is buoyed by strong fundamentals.

“Dragon Capital says Vietnam’s core growth drivers include the expanding middle class and urbanisation, which against a stable economic backdrop have seen the country upgraded to one notch below investment grade status for its fixed income market,” noted Dragon Capital.

Add to that, the Vietnamese central bank is taking steps to stimulate economic growth, which grew at a double-digit clip in the first half of 2023. Those efforts include monetary easing and a push to dial back on cumbersome regulations that often restrict investment.

“At the forefront of this resurgence, the SBV took early strides in easing monetary policy in mid-March, while the issuance of targeted directives has effectively cut through bureaucratic complexities, streamlining operations in both the public and private sectors. Simultaneously, the Government issued decrees designed to breathe renewed vitality into the bond market,” noted Dragon Capital portfolio manager Dien Vu.

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