Vietnam ETF Gains From Financial System Overhaul

Includes: VNM
by: Tom Lydon

The focused exchange traded fund Market Vectors Vietnam ETF (NYSEARCA:VNM) has made gains after a financial sector make-over and growing investor confidence in the country. Foreign investment in VNM is higher than ever, and the 7.8% year-t0-date performance is proof.

High inflation, slow growth and a banking scandal had kept the Vietnamese economy grounded for some time. An overhaul in regulation within the financial sector has re-enforced a recovery within the economy, which has led to an influx of foreign investment, reports Zacks.

"Today, policymakers in Vietnam continue to manage the challenging transition from a centrally planned economy to a market-oriented one. After years of a "pro-growth" policy, the government has shifted toward focusing on macroeconomic stability, as inflation rose almost 20% in 2011. Other macro concerns include wide trade, and budget deficits and financial problems at dominant state-owned companies," Patricia Oey for Morningstar wrote.

Vietnamese stocks are currently touching highs, while presenting low valuations. The government has taken measures to reduce levels of debt within the financial system, which has fortified investor confidence.

VNM is concentrated in the financial sector, with about 40% of the portfolio allocated to this area. VNM gives investors local exposure as well as coverage of any overseas companies that generate at least 50% of their income in Vietnam.

Going forward, Vietnam is looking at increasing foreign ownership in Vietnamese companies and banks. Sometime this year the ownership could rise from the current 49%, and 30% ownership caps, respectively.

Zacks reports that Vietnamese equity valuations are low compared to historical levels, and compared to other Southeast Asian nations such as Thailand or the Philippines.

Market Vectors Vietnam ETF

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.