In what has been a mostly solid year for emerging markets equities, the VanEck Vectors Vietnam ETF (NYSEArca: VNM) is up just half a percent, but this year’s lethargy could belie long-term opportunity with the lone exchange traded fund dedicated to Vietnamese stocks.
There is at least one potential catalyst that could help VNM reverse course for the better: Infrastructure spending. Vietnam has enjoyed robust growth as investments and exports help support the economy. The country has brought in over 2,000 greenfield FDI projects between 2003 and 2014 as companies capitalized on the abundant and relatively cheap labor.
The Vietnamese government has also implemented reforms to attract investments. For instance, the country has cut corporate tax rate to 22% from 25%.
VNM “is trading at 12 times forward earnings, with close to a 4% dividend yield in a zero-rate world. The ETF reached a five-year low in January, and is up less than 1% this year. It looks pretty attractive, with a valuation that is low for a frontier market, and on a technical basis you could see upward appreciation,” said Louie Nguyen, chief investment officer of Soledad Investment Management, in an interview with Dimitra DeFotis of Barron’s.
Vietnam has some notable ambitions, too.
In 2014, Vietnam formed a commission to explore taking the necessary steps for the country to shed its frontier status and gain entry into the widely followed MSCI Emerging Markets Index.MSCI does not have Vietnam on its list of markets that could potentially be upgraded to emerging markets status. When the index provider recently revealed its annual market classification, Pakistan was the only frontier market highlighted as being a potential candidate for promotion to the MSCI Emerging Markets Index.
Among sectors that are attractive in Vietnam are “Consumer staples and financials. The growing consumer confidence in Vietnam, and a large and young population, are driving the sale of financial and consumer products,” Nguyen told Barron’s.
For more information on Vietnam ETFs, visit our Vietnam category.
VanEck Vectors Vietnam ETF
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