Emerging market ETFs can offer an alluring but potentially hazardous tradeoff for investors. On the one hand these markets have been fueling recent growth in the world economy, and so investors in these funds can see significant, sometimes positively stratospheric gains, but on the other, emerging markets by their very nature are not mature and so can be far riskier investments. Perhaps no other emerging market ETF epitomizes this trade-off between growth and risk better than the Market Vectors Vietnam ETF (NYSEARCA:VNM).
Emerging markets posted substantial losses in 2011, with the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) losing as much as 23%, but as bad as that was, VNM took a particularly savage beating, falling almost 47% on the year. Indeed, Vietnam has been having something of a rough go of it lately. The socialist Southeast Asian nation of 90 million has been experiencing acute inflationary problems, with inflation reaching a dizzying 22% last year. In 2011 the Vietnamese Central Bank raised rates to combat the issue, which had a negative impact on growth. The government also devalued the currency which compounded problems.