Vietnam's Economy Recovering, but Headwinds Remain for VNAM

Looking at short-term opportunities in emerging markets (EM) might be a losing bet, but for long-term growth, there are opportunities available in countries like Vietnam.

Rising interest rate and a stronger dollar have battered EM opportunities for much of the year, leaving investors to wonder whether the pain will stop anytime soon. With a lot of uncertainty remaining in the current market, investors don’t want to catch the proverbial falling knife when trying to pick a bottom.

As such, the better strategy is to view EM with a long-term lens. At some point, the U.S. Federal Reserve will have to pump the brakes on hiking rates, which will ease the upward pressure on the dollar and thus provide strength for EM currencies.

In the meantime, investors can take a look at Vietnam, which has been showing signs of improvement as of late. A recent surge in COVID cases may have tamped down the prospects for economic growth, but a strong recovery could make up for lost time and productivity.

“Lender HSBC has raised Vietnam’s growth forecast to 7.6% this year thanks to the country’s broad-based recovery and significant improvement in the manufacturing sector,” a VN Express report noted. 

Manufacturing plays a vital role in the economic health of Vietnam, and that is looking positive as of late. Supply chain disruptions from rising COVID cases appear to be easing.

“Vietnam’s manufacture conditions have been improved significantly, following the ASEAN’s improvement trend, signaling a solid improvement in the health of the manufacturing sector,” said HSBC Vietnam CEO Tim Evans at a forum Tuesday.

Given this, exchange traded fund (ETF) investors can look at the Global X MSCI Vietnam ETF (VNAM) as a potential opportunity. VNAM seeks to provide investment results that generally correspond to the MSCI Vietnam IMI Select 25/50 Index, which is designed to represent the performance of the broad Vietnam equity universe while including a minimum number of constituents, as defined by MSCI, Inc.

Inflation Remains a Concern

It’s difficult to discuss anything related to the capital markets without escaping the topic of inflation. Rising consumer prices continue to be a wild card, and Vietnam’s economy isn’t immune to the rising tide of inflation.

“The economy faces strong headwinds. Slowing external demand and tightening global financial conditions are affecting the exchange rate. Rising inflation and tightening domestic financial conditions could affect domestic demand during the next months,” the World Bank said.

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