Up 10.3 percent year-to-date, the Market Vectors Vietnam ETF
) is something of a standout among emerging markets
While some major
diversified emerging markets funds have been
, VNM has stood tall, though it should be noted the ETF is lower
over the past month and Vietnam is classified as a frontier
market by index providers.
Still, the ever-volatile VNM has upside potential on the back
of Vietnam's plan to form a TARP-esque debt asset management
company to absolve Vietnamese banks of scores of sour loans.
The bad debt management company could be set up as soon as
this month and will issue bonds to finance the acquisition of
debt from lenders,
Bloomberg reported, citing a member of Vietnam's
National Financial and Monetary Policy Advisory Council
The plan has been in
the works for several months
and some market participants could argue it is already "priced
in" when it comes to VNM.
Still, there is no denying any positive steps toward
bolstering Vietnam's fragile banking sector could directly
benefit VNM. The lone ETF tracking the Southeast Asian nation
features a 42.1 percent allocation to the financial service
sector, more than double its exposure to energy, the ETF's
second-largest sector weight.
That large sector concentration, a familiar theme with many
ETFs tracking developing world countries, has previously proven
troublesome for VNM. The ETF plunged in the second and third
quarters of 2012 as news broke regarding arrests of multiple
Vietnamese banking scions.
Even a rumor to that effect lead to a glum one-day
performance for VNM in late February
At issue for the government and the bad loan management
company is figuring out exactly what the bad-debt ratio is at
Vietnamese banks. The government said late last month the ratio
fell to six percent from eight percent a year earlier, but Fitch
Ratings pins the number at higher than percent, Bloomberg
Clearly, it is possible that the bad-debt ratio for Vietnamese
banks could turn out to be far worse than the market is willing
to stomach on a near-term basis. The higher the cost of
capitalizing Vietnam's banks, the bigger the drain on GDP in a
country that in 2012 saw its slowest rate of GDP growth since
On the other hand, the bad loan company is a "necessary evil."
Arguably, the sooner the firm becomes a reality, the sooner
Vietnam can go about informing global investors about the extent
of its bad-debt ratio.
That may sound simplistic, but consider this: Foreign
including Japanese banks
, have recently shown an appetite for acquiring stakes in their
In fact, the State Bank of Vietnam is considering boosting
foreign ownership limits in Vietnamese banks, which currently
cannot exceed 30 percent of the bank's charter capital. Should
the bad-debt management plan progress smoothly and not spook
global investors with any negative surprises, the program could
provide a spark to VNM later this year.
For more on Vietnam, click
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