Vietnam Is One of Asia’s Most Intriguing Equity Markets

As measured by the VanEck Vietnam ETF (VNM), it’s been a decent year for Vietnamese stocks. The original ETF dedicated to equities in the fast-growing Southeast Asian country is higher by 10.73% year-to-date, as of Nov. 17.

That’s a significantly better performance than what’s been notched by an actively managed ETF tracking frontier markets — Vietnam’s market classification. Additionally, VNM is beating the MSCI Emerging Markets Index by better than 2-to-1 this year.

2023 could be the fifth year in the past seven that VNM has delivered an annual gain. Still, Vietnam remains overlooked by many U.S. investors evaluating opportunities in the Asia-Pacific region. The country has often been lost in the shuffle relative to larger economies such as China and India. Arguably, Vietnam’s economic fundamentals indicate assets such as VNM deserve more attention.

Vietnam Economy Evolving, Growing

A country’s stock market and its economy aren’t always joined at the hip. But the economic growth outlook for Vietnam could be supportive of upside for VNM.

“In recent years, Vietnam has taken the baton from China and benefitted from supply chain relocations, strong foreign direct investment, and political stability,” according to London Stock Exchange research. “Having witnessed robust growth momentum of approximately 8% since the global pandemic, the fastest annual pace since 1997. Spurred by an increase in both domestic demand and manufacturing exports. The International Monetary Fund (IMF) forecasts that Vietnam will grow its GDP by 5.8% in 2023 and by 6.9% in 2024, outperforming several other economies in the ASEAN region.”

The $548.52 million VNM is levered to economic growth in the county to which it provides exposure. That’s because the 14-year old fund allocates 28% of its weight to financial services stocks. Those companies could benefit as Vietnam’s economy rises, creating the need for more corporate credit.

Vietnam a Compelling Diversifier

Potentially adding to the allure of the long-term VNM story is the fact that more institutional investors are paying attention to Vietnamese equities.

“Vietnam is also garnering more attention from the global investor base,” added the LSE. “When compared with its frontier and emerging market peers, it has delivered strong, long-term, relative risk / returns against other emerging and frontier market equities, as well as global equities more broadly.”

“Vietnamese stocks have recorded a 10-year cumulative total return in USD terms of 107.8%, while other emerging markets such as the China A share market and the ASEAN Extended market, have delivered more modest returns of 43.7%, 70.9% and 12.6% respectively,” the LSE added further. “Throughout this period of growth, Vietnam’s market has also displayed a low correlation to these markets, making it a compelling diversifier.”

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