Vietnam ETF Restrained by Foreign Ownership Limits

ETF Trends

The Market Vectors Vietnam ETF (VNM) is trading near its highest levels since June and although the fund is up just 3% year-to-date, that is still pretty good compared to the steep losses incurred by ETFs tracking other Southeast Asian markets.

If not for restrictive, government-imposed limits on foreign ownership of Vietnamese stocks, there is a chance 2013 could have been even better for the $383.2 million VNM. With inflation, previously a deep concern for Vietnam and VNM shareholders,slowing and economic growth steadying, foreign investors are buying the country’s equities again. VNM has seen 2013 inflows of nearly $64 million. [Vietnam ETF Soars in Early 2013]

The problem is there apparently are not enough shares to go around. Stocks such as Vietnam Dairy and DHB Pharmaceuticals “are among 20 companies with overseas ownership at the 49 percent limit,” Bloomberg reported, citing ABC Securities. Neither is a holding in VNM, but the ETF is home to 28 of the largest Vietnamese firms, so it is not unreasonable to surmise that a few of the ETF’s holdings will bump up against the foreign ownership limit if they have not already done so.

Vietnam, classified as a frontier market, has seen foreigners buy nearly $209 million worth of its shares this year, according to Bloomberg. In local currency terms, Vietnamese stocks rank among the top-10 global markets this year with an available U.S.-listed ETF. [10 Best Global Markets by ETFs]

Policymakers have been working on initiatives to encourage foreign investment by raising the cap on foreign ownership in local companies to more than 49% and one fund manager cited by Bloomberg expects news on that issue to emerge within the next two months.

Earnings growth is expected to be a robust 15% this year in Vietnam, with materials and staples names, a combined 13.5% of VNM’s weight, leading the charge. VNM has a trailing 12-month P/E ratio of 12.37 and a three-year correlation of just 0.47 to the S&P 500, according to Market Vectors data.

Market Vectors Vietnam ETF

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