Vietnam ETF Slides On Banking Scandal

Sep.18.12 | About: VanEck Vectors (VNM)

An exchange traded fund that invests in Vietnam is one of the few equity ETFs that's in the red the past month amid the risk-on rally fueled by central bank easing. The fund has been hit by a scandal in the financial industry and general worries over the emerging market's economy.

It's been a volatile year for the Market Vectors Vietnam ETF (NYSEARCA:VNM). The fund began to stabilize after the sharp May sell-off, but recent news of a banking scandal was enough to make investors shy away from this frontier market.

"Share prices have fallen sharply because local investors are fearful that the two arrests will hurt the reputation of some banks, and subsequently will result in a wider negative impact for the whole banking sector," Vuong Quan Hoang, a Hanoi-based analyst and researcher at the University of Brussels' Center Emile Bernheim, said in a report.

VNM plunged about 6% last week as the Vietnamese economy has experienced a derailing. The arrest of famous banking businessman Nguyen Duc Kien on vague business-related charges has ignited fear toward most of the financial system within the country. More arrests could be made.

The stock market in Vietnam fell to its lowest level in four years and investors are concerned that the country will be on the path to economic meltdown, similar to Thailand in the late 1990s.

Local analysts are hoping for stabilization and temporary trading on the local bourse could be needed to stop panic from spreading.

VNM had been one of the best-performing ETFs in 2012 and is still up about 12% year-to-date.

VNM was the only pure-play ETF for Vietnam. Recently, BlackRock introduced the iShares MSCI Frontier 100 Index Fund (NYSEARCA:FM), a fund that tracks some of the smallest and most ill-liquid countries. Vietnam is one of 20 featured countries in the index.

While the interruption of VNM's outperformance is a good example of emerging markets volatility, a fund such as FM can serve as a buffer, with ample diversification but enough exposure to gain from any upside.

Market Vectors Vietnam ETF

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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.