A slow growth rate, higher inflation level, and weak banking
system are factors which impacted the Vietnamese economy to a
great extent in 2011. The economy expanded at its slowest pace in
years in 2012 as a drop in bank lending hampered domestic
However, it led to measures from the government to overhaul
the financial system, which acted as a net positive on the
country going forward (
2012 Was Forgettable for These Emerging Market
These new government reforms, positive demographics, and large
foreign inflows led to a recovery in the economy. In fact, in
2013 the economy has been performing quite well with Vietnamese
equities gaining a great deal of strength.
Inside the Turnaround
It can be said that growing investor confidence in the market
is largely accountable for this surge in Vietnamese securities.
The government aimed to reduce the high level of debt in the
Vietnamese banking system, with the objective of stimulating
further investment in the economy thanks to an investor
Additionally, Vietnamese stocks continue to shoot up on the
back of the country's economy gaining strength and are still
valued low. These stocks have not only provided investors with
plentiful profits, but are also pretty inexpensive compared to
Among peers, valuations are also low compared to their own
historical levels, and particularly when compared to other key
Southeast Asia nations, such as many surging securities in
, or the
The Vietnamese economy has massive growth potential and is
characterized by favorable demographics, a competitive
manufacturing base, stable policies and increasing disposable
income. The region also has close proximity to China which could
be beneficial from a trade perspective (
5 ETFs for Countries with Highest Employment
The economy has received a further boost due to the country's
plans to increase foreign ownership, as yet limited in Vietnamese
companies. The current quarter could see a ramp up in cap limit
of foreign ownership in Vietnamese companies and industrial
sectors from the current 49%.
The central regulatory State Bank of Vietnam is also
considering increasing the foreign ownership limit in Vietnamese
banks from 30% currently.
Moreover, a continuous effort to curb inflation is showing
results. The country in March posted a fall in its inflation rate
at 6.64% compared to 7.02% reported in February. A somewhat
tighter monetary policy can be attributed to this fall in
inflation levels, and could help the country going forward.
Still, the bad debt level of banks remains a matter of concern
for the economy. Higher level of bad debt has not only dampened
consumer demand, but has limited any company's ability to raise
capital and encourage expansion.
At the same time, efforts are on, to bring down the debt
level. Towards this end, a debt asset management company has been
set up in order to tackle the problem.
Amid some critical issues facing the economy, Vietnam seems to
be growing steadily as it appears to be facing those problems
head on. It thus appears that 2013 may prove to be year of
reasonable growth for the economy (
Is the Vietnam ETF Back on Track?
A look at
tracking the economy depicts the same story. The ETF which proved
to be a laggard in 2012, seem to have turned around
The strength in Vietnamese equities is quite palpable with one
ETF tracking the economy.
Market Vectors Vietnam ETF (
has been one of the best performing ETFs of the year with year-to
date gains of 7.8% (
3 Foreign ETFs Still Beating the S&P 500
VNM in Focus
VNM tracks the Market Vectors Vietnam Index, and expands on
this local exposure to include offshore companies that generate
at least 50% of their revenues in Vietnam. Consequently, it also
holds firms that are listed on U.K., Thai, Malaysian and Indian
This has resulted in a portfolio consisting of 31 stocks in
which the fund invests an asset base of $443.3 million. Volume is
quite good though, as it comes in at roughly 600,000 shares a
The scope of diversification is minimal in the fund, as the
top ten holdings take up 59.4% of the asset base. Among
individual holdings, Baoviet Holdings gets the top position in
the fund with a share of 9.55%.
It should be noted that despite the fact that banks in Vietnam
are heavily burdened with bad debt, the ETF has maximum exposure
in the financial sector. Financials play a very dominant role in
performance of the ETF with a share of 42.1% in the fund.
One noteworthy point here is that despite a heavy focus
towards financial sector, the fund has performed really well in
the New Year and has rewarded investors with good profits (
Best ETFs to Start 2013
Among other sector holdings, energy and industrials get double
digit allocation in the fund with respective shares of 20.5% and
12.8%. The fund charges a fee of 76 basis points annually.
VNM currently has a Rank of 2 or Buy with our Zacks ETF Rank,
and is capable of delivering big gains to investors. However,
volatility is a significant problem with this fund, while
premium/discount issues can also come into the mix.
Still, given the underlying fundamentals of this ETF and its
low level of correlation with many markets, it could be worth a
closer look by some. Just make sure you have a high risk
tolerance and can stomach big moves, as large swings are bound to
happen with this intriguing emerging market ETF.
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ISHARS-MS PH IM (EPHE): ETF Research Reports
ISHRS-MSCI THAI (THD): ETF Research Reports
MKT VEC-VIETNAM (VNM): ETF Research Reports
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