Vietnam ETF Getting Lift From Financial Services Stocks

Vietnam stocks are among the best performers in Southeast Asia to start 2024, and the VanEck Vietnam ETF (VNM) is participating in the rally.

The original ETF dedicated to Vietnam equities is beating the MSCI Emerging Markets Index by a margin of better than 3-to-1 this year, as of March 15. That index is the gauge to which Vietnam is angling for a market classification promotion.

The financial services sector, specifically brokerage firms, is one of the groups leading the way in Vietnam this year. That’s good news for VNM investors because that’s the ETF’s largest sector exposure, at a weight of 27.63%.

Why Financials Are Boosting Vietnam ETF VNM

There are a few reasons Vietnam banks and brokerage firms are rallying in the first quarter. One is that rising liquidity in the previously illiquid market. Another is expectations Vietnam will, at the very least, be promoted to emerging markets status by FTSE Russell at some point this year. The country is currently classified as a frontier market.

“The liquidity boost and retail trading boom have benefited the overall market as well, with the VN Index the best performer among benchmarks in Southeast Asia this year. The daily trading value of Vietnamese stocks hit an almost seven-month high on March 8 while the new brokerage account openings reached 113,300 last month, up 80% from a year ago,” reported Nguyen Kieu Giang for Bloomberg.

Additional Supporting Factors for VNM

Further supporting upside for VNM and its financial services components this year is a belief among market observers that the long-awaited promotion to the emerging markets designation is bringing more local retail investors into Vietnam markets. Those participants are hoping to capitalize on the potential market classification upgrade.

On a global basis, there’s significantly more capital allocated to emerging markets funds — active and passive –than there is to comparable frontier markets products. If Vietnam earns the desired emerging markets promotion, fund managers and issuers that benchmark to indexes that will be new homes to Vietnamese equities must buy those stocks, including some VNM holdings.

The country is also making technological strides in its capital markets. And those strikes aim to luring more global investors and enhancing liquidity.

“The nation plans to introduce a platform that can handle three to five million orders per day, compared with the current capacity of about one million, and make settlement smoother. The central bank, meanwhile, has carried out four rounds of policy easing, helping spur an economic rebound and lure more individual investors,” according to Bloomberg.

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