Shares of the Market Vectors Vietnam ETF (NYSE:
), one of the best-performing
of any stripe over the past month, lost more than five percent
today in what is the fund's worst day trading in multiple
What can be viewed as some solace for traders that are already
long VNM and those kicking themselves for missing a 25 percent
rally over the past month (before today's loss) is the reason why
VNM slumped on Friday. Fortunately, it would appear that none of
negative catalysts that have previously rocked VNM, including but
not limited to
currency devaluations and arrests of banking
, were at play Friday.
In addition to VNM's Friday decline perhaps being a case of some
natural profit-taking, the fund's retrenchment could be
attributable to a rarely discussed element of the ETF's structure.
As one trader pointed out to Benzinga, there is a limit on how many
new shares of VNM can be created per day. That limit is one
creation unit, or 50,000 new shares.
Since VNM has been rapidly rising in recent weeks, it is
reasonable to assume most of the new share creation demand has come
from buyers. As the trader noted, when buyers are controlling VNM's
share creation, those looking to short the ETF get shuffled to the
back of the line because of the creation limit.
Not all ETFs are subject to this scenario, but VNM is likely
because of trading band limits within the local Vietnamese market.
Currently, stocks listed on the Ho Chi Minh Exchange can only trade
within a five percent band while Hanoi Stock Exchange issues have a
seven percent band. In an effort to boost liquidity, Vietnamese
regulators are lifting those bands to seven percent and 10 percent,
respectively, next week,
News of the higher trading bands could a boon for VNM beyond the
obvious catalyst of improved liquidity for Vietnamese equities.
Increase trading bands could mean more fees for Vietnamese banks
and brokerage houses, implying an avenue to bolster revenue.
allocates about 45 percent of its weight to
financial services stocks
and it has been a more sanguine environment for Vietnamese banks
that has helped propel the ETF in recent weeks.
Interestingly, Friday's decline in VNM obfuscated what should
have been some good news for the fund. Looking for ways to bolster
an economy that is coming of its slowest year of GDP growth in 13
years, Vietnamese Prime Minister Nguyen Tan Dung announced that
companies there will not have to pay corporate or value added taxes
for the first half of this year,
according to the Wall Street Journal
There are other near-term catalysts that could signal Friday's
decline is a buying opportunity in VNM. The government is expected
to make official a debt asset management company to resolve bad
bank by the end of this month.
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 and the country's State
Securities Commission is launching a pilot program to experiment
with the idea of foreign firms owning more than 49 percent of
Obviously, a 5.1 percent loss in a single trading is never fun
for those that are long the security that endured the drop. Then
again, VNM has been moving higher in straight-line fashion,
indicating this pullback was going to happen at some point. With
the fundamental case for VNM still in tact, Friday's action could
prove to be a minor pothole on VNM's road to higher returns.
For more on Vietnam, click
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
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