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VNM Rides Higher On Vietnam Economy

Hung Tran

The Vietnamese economy is shaping up to be an emerging-market bright spot this year, and one exchange-traded fund is offering investors exposure and a lift in their portfolios.

The $355 million Market Vectors Vietnam ETF (VNM), which tracks a market-cap-weighted index of Vietnamese stocks, is up 8.09 percent for the year. The fund's underlying stock includes Joint Stock Commercial Bank for Foreign Trade of Vietnam; Bao Viet Holdings, Vietnam's biggest insurer; and Vingroup Joint Stock Co., a real estate concern. However, the Vietnam Ho Chi Minh Stock Index/VN-Index is up 25.94 percent year-to-date through Aug. 15, according to Bloomberg.

The upward momentum is directly linked to China, a neighboring country that has seen its low-end manufacturing jobs move to Vietnam. Until recently an agriculture-centered economy, Vietnam now boasts technology-sector exports as one of its main moneymakers.

Indeed, Vietnam's exports have been transformed in recent years, with technology now representing 18 percent of the country's total exports—that's up from 4 percent just a decade ago, according to data provided by Van Eck. That growth now has technology exports outpacing that of textile goods, agriculture, crude oil and shoes—the other main components of the country's output.

Other signs that the Vietnamese market is picking up include a 25 percent jump in auto sales from last year; a 14.3 percent increase in exports as of the end of July; and a 5.15 percent uptick in consumer bank lending, the Wall Street Journal reports .

"The government seems to recognize what needs to be done to maintain the positive trends we have been observing this year. In the short term, the key will be finding the right balance of policies that will help further expand credit to businesses and increase consumer spending while continuing to keep inflation low and stable," said Amrita Bagaria, Van Eck's ETF product manager for international equity ETFs.

"Ultimately, however, the government will need to address the inefficiencies of its state-owned enterprises if it wants to see long-term economic growth. The encouraging news is that Prime Minister Dung has demonstrated his commitment to restructuring and equitizing SOEs, which is what foreign investors have been asking for," she added.

Also, recent trends in foreign direct investment may be a good sign for Vietnam, which has struggled to attract investors since the global economy slowed in 2009, according to Stratfor, a geopolitical intelligence firm.

Total foreign direct investment in Vietnam reached more than $11.9 billion in the first seven months of this year, a 19.6 percent rise over the same period last year, according to the Communist Party of Vietnam newspaper reports .

Over the past seven months, $10.4 billion of foreign capital flowed to manufacturing and the processing industry (87.6 percent of the total), followed by real estate's $580 million (4.9 percent).

"In fact, [foreign direct investment] into Vietnam has recovered significantly in 2013, and it has been appropriated to areas that ordinarily do not receive much attention from investors. Investment diversity could help Vietnam maintain its status as the pre-eminent emerging economy in an increasingly competitive region ," according to Stratfor.


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