As is par for the course, it has been another wild year for the Market Vectors Vietnam ETF (VNM) . Year-to-date, the lone Vietnam ETF is up 6.1% and while that may sound good compared to the performances of other Southeast Asia single-country ETFs (it is), VNM is disappointing considering it was up 31% year-to-date by mid-February.
Vietnamese equities and VNM surged in the first quarter on news policymakers and bankers there were taking steps to liberalize the frontier market’s economy and deal with bad debt and sour loans within the country’s notoriously fragile banking system. The latter being a critical point because the financial services sector accounts for 37.5% of VNM’s weight. [Reforms Boost Vietnam ETF]
However, it was botched attempts at a TARP-esque, government-run toxic debt entity, among other factors, that sent VNM to another summer swoon. From its June peak to its September trough, VNM plunged 21.5% as the Vietnamese government struggled to shift from years of pro growth policies to tackling macroeconomic headwinds. [Vietnam ETF Out-Dueling Emerging Markets Funds]
VNM has bounced back, sort of, in recent months. Over the past 90 days, the fund has outperformed the comparable Indonesia, Malaysia and Thailand 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%.
Vietnamese stocks could rally into year end, implying VNM might be a buy in the near-term. The benchmark VN Index will probably climb to 550 by December, versus yesterday’s close of 501.17, said Fiachra MacCana, a managing director and research head at Ho Chi Minh City Securities, Bloomberg reported.
The VN index may reach 600 by the end of the first quarter, or 20% above Wednesday’s close, and earnings growth is expected to be 15% this year, according to Bloomberg. Materials and consumer staples names, a combined 14.1% of VNM’s weight, are seen leading the earnings growth.
Betting on a fourth-quarter and/or first-quarter rally with VNM is not a bad idea. In early October 2010, the ETF was just below $25, but by mid-Januar 2011, it was flirting with $27.50. At the start of the first quarter of 2012, VNM was at $14.40, but by the end of the quarter, the ETF traded near $19.50. At the start of the fourth quarter last year, VNM traded around $16. By mid-February 2013, the ETF resided near $23.30.
Since the start of this month, VNM is up 5.2% as investors have poured $10.4 million into the fund.
Market Vectors Vietnam ETF