Published April 29, 2013
The dream of an asset management to help Vietnamese banks deal with mountains of bad debts is getting closer to becoming reality and that news is helping the Market Vectors Vietnam ETF (VNM) trade higher Monday.
The Market Vectors Vietnam ETF, the lone ETF devoted to the Southeast Asian nation, is higher by about 0.6 percent in midday trading on news the government there will approve the Vietnam Asset Management Company, or VAMC. Putting the VAMC into context U.S. investors are familiar with, perhaps the best way of describing the program is as the Vietnamese equivalent of the troubled asset relief program, or TARP, implemented during and after the financial crisis.
VNM started 2013 on a strong note, extending gains that started accruing in the fourth quarter of 2012, but the ETF has recently struggled as the government and State Bank of Vietnam struggled to cobble together a wide-ranging plan to help ailing Vietnamese banks.
At the start of trading Monday, VNM had lost 5.6 percent in the past month due in large part to an initial version of VAMC not going far enough to help the country's banks. Earlier this month, a version of VAMC was unveiled that would help Vietnamese banks deal with sour loans, but not their bad debts.
Policymakers there sent the architects of VAMC back to the drawing board, urging for a more sweeping plan that would help bolster liquidity in the fragile Vietnamese banking system. Put simply, this is perhaps the biggest near-term issue facing VNM because the ETF allocates 38.3 percent of its weight to financial services stocks. Energy is the second-largest sector weight at 20 percent.
Vietnam's Minister and Chairman of the Government Office Vu Duc Dam added that as part of the VAMC, banks will have to form their own hedge funds under the supervision of the State Bank of Vietnam to deal with the bad debts.
The emergence of a broader version of VAMC comes amid slowing economic growth in Vietnam, but also at a time when the country seems to finally have a grip on inflation. Vietnam's previous losing battles with inflation prompted several devaluations of its currency, the dong, and explains why VNM has slid 19.4 percent in the past two years.
Perhaps more importantly, VAMC is coming to reality at a time when the central bank is considering boosting foreign ownership limits in Vietnamese banks, which currently cannot exceed 30 percent of the bank's charter capital.
Foreign banks, including Japanese firms, have in recent months shown an appetite for investments in their Vietnamese counterparts. Should VAMC prove successful, that could stoke further investment in Vietnamese banks, boosting VNM in the proces.
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