Vietnam's stock market defied the global sell-off Tuesday in
rallying to a fresh seven-month high.
Market Vectors Vietnam ETF (
) surged 1.88% intraday to 20.01.
MSCI Emerging Markets Index (
) tumbled 1.2% to 44.11.
IShares MSCI EAFE Index (
), tracking developed foreign markets, skidded 0.82% to
SPDR S&P 500
) gave back 0.60% to 145.10.
After lagging nearly all global markets in 2011 with a 44%
loss, VNM has bounced back with a vengeance. It rallied 26% last
year vs. 19% for EEM. It's been the No. 1 performing country ETF
the past week, month and three months, vaulting a 9%, 22% and 26%
over those periods. VNM is trading above both its 50- and 200-day
moving averages, indicating a solid uptrend.
VNM sports a robust IBD Relative Strength Rating of 83,
indicating it's outpacing 83% of the stock market. Its A
Accumulation-Distribution Rating (on an A-to-E scale with A the
highest) shows big institutional investors are heavily buying
shares rather than selling.
Neena Mishra, ETF research director at Zacks Investment
Research in Chicago, believes the Southeast Asian nation is a
great long-term investment.
She wrote in a report:
"Political and economic reforms (Doi Moi) launched in 1986
transformed Vietnam from one of the poorest countries in the
world, with per capita income below $100 (annually), to a lower
middle-income country with per capita income of about $1,300 in
2011. The poverty ratio has fallen from 58% in 1993 to about 14%
Foreign Investment Influx
"Even though Vietnam is a communist country, they have market
friendly policies. Foreign capital has flowed into the country as
a result of the reforms. The country has received more than $6.5
billion in foreign direct investment in each of the last five
Gross Domestic Product Growth
"Vietnam's GDP increased by more than 8% annually from 2003 to
2007, before the global recession hit the export-oriented
economy. Per IMF estimates, the economy slowed down to 5.1% in
2012 from 5.9% in 2011 but will rebound in 2013 to 5.9%.
"Positive demographics further support future growth
prospects. The population is 91.5 million with a median age of
about 28 years. Most of the young people are educated and can
speak English. Unemployment rate at about 2% is among the lowest
in the world.
"According to a study by Ernst & Young, Vietnam is
expected to grow by almost 6% over the next 25 years and per
capita income is expected to grow by more than six times over the
"Vietnam continues to be the main beneficiary of the migration
of low-end manufacturing out of China as the producers try to
take advantage of wages that are about half of that in China. The
shift in China's policy to focus more on domestic consumption
will also benefit Vietnam as an outsourcing center.
"We may add that Vietnam now faces strong competition from
neighbors like Bangladesh, Myanmar and Cambodia in low-cost
manufacturing. However, in recent years, the country has been
somewhat successful in moving up the value chain by starting
manufacture of higher-value products, in addition to its
traditional export items of clothing and footwear.
"Last year, the government approved and published a broad plan
for banking sector reform. The plan included merger of weak banks
and recapitalization of the banking system. The government also
plans to set up an asset management company to take over the bad
debts from the banking system.
"The arrest of a prominent banking tycoon in August last year
had rattled the stock market and the banking system, but it also
sent signals to the foreign investors that the authorities were
willing to make serious efforts to tackle the problem of
corruption and mismanagement in banks and state-owned
Accommodative Monetary Policy
"With inflation under control, the central bank now has more
flexibility to lower rates in order to support growth. As
expected by the market, the bank announced a 100-basis-point cut
in the key rates last month (sixth rate cut of the year).
"With an improving trade balance, the country may actually
post a current account surplus for 2012 (per the World Bank)
after years of persistent current account deficits.
"The economy still suffers from some structural problems, like
inefficient and wasteful public enterprises, which account for
about 40% of output, an undercapitalized banking sector and a
high trade deficit.
"2011 was a bad year for the economy as growth slowed,
inflation spiked (touching 23% in August 2011), and trade deficit
worsened. As a result, the government passed a resolution to
restrain credit growth and control inflation and the central bank
raised rates several times.
"Economic activity suffered due to the aggressive rate hikes
and the banks were saddled with bad loans. Later that year, the
government announced a three-pillar economic reform program aimed
at restructuring public and state-owned enterprises and the
financial sector, as the top priorities for the next five
"VNM tracks the Market Vectors Vietnam Index, which provides
exposure to the publicly listed companies that are domiciled and
listed in Vietnam or derive at least 50% of their revenues from
"VNM's 50% weight to financials is our main concern with this
ETF, due to the health of the country's banks. In addition to
being undercapitalized and faced with rising nonperforming
assets, the financial system lacks transparency. It remains to be
seen whether the reforms launched recently will be able to
improve the health of the banking system."
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