Thoughts on Investing in China, Vietnam

Includes: FXI, VCVOF, VNM
by: Global Investing Editor

From Cambridge MA fund flow trackers EPFR Global report:

China’s resilient growth has been a key driver of flows into emerging markets equity funds in recent months. During the third week of August, however, doubts about the quality of the loans doled out at breakneck speed by Chinese banks during 1H09 prompted investors to book profits and take some of their recent gains off the table. EPFR Global-tracked China Equity Funds had their worst week since early 1Q08 while outflows from Asia ex-Japan and Global Emerging Markets (GEM) Equity Funds hit 24 week and year-to-date highs respectively.

While we have lightened up on China as its local markets fell 20%, as we reported yesterday, this is a buy opportunity. Shanghai is a very immature rumor-driven exchange and the pattern of panic selling followed by a new boost can be spotted again and again.

Writing from Moscow, Eric Kraus of Otkritie Financial Corp. tries his hand at forecasting where markets are heading. Short-term, he says to remain fully invested, with perhaps a bias toward moving into oil-related stocks and China.

But can this go on? Here is his reply:

The question remains, how far out on the ice we can walk before we break through. The rally is likely to continue for a while longer, but do not forget that it is essentially the result of unprecedented monetary and fiscal stimulus, and at least the latter will soon become unsustainable and may turn into a headwind.

Furthermore, a true V-shaped recovery would require more than just the inventory cycle – it would require a major upturn in the credit cycle – which we find most unlikely.

My Vietnam commentary (linked to the creation of an new U.S. ETF) has got a lot of play, so I follow up. Here are items about other ways to invest in Nam from readers in MD, NY and FL:

*(OTCPK:VCVOF), VinaCapital Opportunity Fund, seems to be a good Vietnam Fund. As you described, I bought my first shares far too high and got crunched last year. Fortunately, I doubled up not far from the bottom. They are managed out of London but also have managers in Viet Nam. As the above symbol indicates, I bought them instantly through Fidelity. They also have a Viet Nam Infrastructure Fund that interests me a lot because it sells below NAV. However Fido had to get that one for me in London.

*Cavico Corp., one of the largest infrastructure and natural resources companies in Vietnam announced a reverse stock split to position the company to apply for a listing on the Nasdaq exchange. Cavico could become the first Vietnam based company to be listed on a major U.S market. Timothy Pham, a Vice President and Director of Cavico (and an American) is boosting infrastructure development in Vietnam as the company will soon begin building a 30 megawatt (MW) wind power plant.