Vietnam's banking sector, the Southeast Asian nation's most
controversial industry group and one of the largest sector
components in the Market Vectors Vietnam ETF (NYSE:
VNM
), is the primary reason VNM and investor confidence in the country
sank during the second and third quarters of 2012.
Amid soaring bad debt levels and a government crackdown on
corruption that resulted in the arrests of multiple Vietnamese
banking luminaries, foreign investors had little reason to embrace
Vietnam bank stocks. VNM suffered as a result, plunging from near
$21 in May 2012 to around $15 in November.
VNM's fortunes have reversed for the better as the ETF has
surged almost 24 percent in the past month. One big reason: The
banking sector. The development of a debt asset management company
to resolve bad bank debt has been helped lift VNM, which devotes
about 45 percent of its weight to financial services stocks.
So has a new government outlook on foreign investment in
Vietnamese banks. As is the case with so many large financial
institutions in various developing markets, the state controls
Vietnam's most recognizable banks. Apparently realizing that this
can be a turn-off for foreign investors, the Vietnamese central
bank is mulling an increase in foreign ownership limits in the
country's so-called bad banks.
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,
according to the Asia News Network
.
Central bank Governor Nguyen Van Binh said the central bank has
submitted a proposal to policymakers in Hanoi that would lift the
limit on ownership of a single foreign strategic shareholder in any
other bank from 15 percent to 20 percent, Asia News reported.
The news comes at a critical time. Vietnam saw its foreign
direct investment total
slump 15.3 percent last year to just over $13
billion
. Manufacturing, real estate and retail were the sectors that were
on the receiving end of the bulk of FDI directed to Vietnam. Banks,
not so much.
Noteworthy is the fact that some foreign banks saw opportunity
in Vietnam in advance of Binh's announcement regarding the push for
relaxed restrictions on foreign ownership of stakes in the
country's banks.
In late December, Japan's Mitsubishi UFJ, that country's largest
bank, announced a $743 million deal to acquire 20 percent of
Vietnam Joint Stock Commercial Bank for Industry and Trade, or
VietinBank. The
State Bank of Vietnam will remain the majority
owner
of VietinBank, but the deal shows Vietnam is warming to outsiders
owning large slices of its financial services firms.
In the Asian News Network interview, Binh noted "The most
fundamental factors [for attracting capital] are still the business
efficiency of companies, economic stability and investor
psychology." With Vietnam, those points ring especially true given
the country's reputation for corruption and a long-slumping equity
market.
On the upside, should Vietnam proceed with opening its banks to
increased foreign investment, the bull case for VNM becomes all the
more compelling. As it is, the ETF carries a
a P/E
ratio of 9.29, a price-to-book ratio of just 1.15 and dividend
yield of 3.33 percent
.
Those numbers indicate VNM is inexpensive relative to the
broader emerging markets universe as represented by the iShares
MSCI Emerging Markets Index Fund (NYSE:
EEM
). VNM's dividend yield is far higher than EEM's and the former's
price-to-book ratio is less than half of the latter's. EEM trades
with a P/E of 17.31,
according to iShares data
.
For more on the Vietnam ETF, click
here
.
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
All rights reserved.
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