The definition of capitulation is the scenario under which
investors give up on riskier investments to move to more benign
fare, usually doing so in "panic selling" fashion. If there is
such a thing as "reverse capitulation," or giving up on the
punishment of particular stock or ETF to embrace it from the long
side, the Market Vectors Vietnam ETF (NYSE:
VNM
) might be seeing that scenario play out.
Shares of the controversial fund are higher by one percent
today on volume that is already more than a third higher than the
daily average. In what amounts to a stealth rally, VNM has surged
4.4 percent this week. Over the past month, VNM has gained five
percent, bouncing back (sort of) from months of losses.
In May, the lone ETF exclusively devoted to the Southeast
Asian economy was trading just over $21. By late November, VNM
was flirting with $15, a stunning reversal of fortune for a fund
that was one of the top-performing
ETFs
of any kind in the first quarter.
A brief summary of VNM's wild 2012 ride goes like this: The
ETF was bid higher earlier this year, taking part and leading to
some extent, a broader rally in emerging markets funds. Investors
were enchanted by VNM even after a precipitous 2011 fall for the
fund for two reasons.
First, Vietnam's expected economic was forecast to be at least
on par with, if not better than, much of the developing world.
Second, it appeared policymakers in Hanoi had finally gotten a
handle on inflation, the biggest stumbling faced by the
Vietnamese economy over the past several years.
Then came the notion that Vietnamese equities were
cheap relative to other developing nations
. Add to that, it was reported in the second quarter that
Vietnamese
Vietnamese banks were sitting on copious amounts
of excess cash
, good news for VNM, which is heavily allocated to financial
services names.
That ebullience would die a harsh death following news of the
arrest of two noteworthy Vietnamese banking scions, headlines
that dealt a blow to investor confidence in the country's banking
system.
Now, global investors have concerns about the amount of bad
loans Vietnamese banks must contend with. Earlier this week,
the World Bank
said Vietname lacks clarity on the depth of its bank sector woes.
That is not good news for an ETF that allocates almost 45 percent
of its weight to financial services names.
In what some investors may view as a quixotic response to the
World Bank report, VNM has traded higher in each of the three
U.S. trading sessions since the report was released. One reason
for VNM's move higher could be an HSBC report released on the
same day as the World Bank's. HSBC said Vietnamese policymakers
made the right decision to
focus on macroeconomic issues rather than
growth
.
As such Vietnam's PMI reading pushed above 50 last month and
inflation was tolerable at 7.1 percent, down from 18.6 percent a
year ago, HSBC noted.
On the other hand, Vietnam's bank woes are expected to have
stifled credit growth this year and the country may be forced to
package the bad debts and sell the debt to foreign investors,
according to Saigon Daily
.
If those debt sales do happen, it would like be at a high
yield. Vietnam's sovereign debt is rated BB- by Standard &
Poor's, putting the country in the same class as Nigeria and
Serbia.
Bottom line:
The Vietnamese investment thesis is near-term fractured,
long-term appealing. For this week at least, the bulls appear to
be wining. How long that lasts is up for debate.
For more on Vietnam, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.