The Market Vectors Vietnam ETF, the lone ETF exclusively devoted to the
Southeast Asian country, started 2012 with a bang, ranking as one of the
top-performing ETFs of any kind in the first quarter. Following a nasty
sell-off in May, the second quarter was not as kind to VNM, but until last
week, the fund had been showing signs of stabilizing.
Then came news of the arrest for
two noteworthy Vietnamese banking scions, headlines that dealt a blow to
investor confidence in the country's banking system. What is ironic is that
Vietnam is a former French colony and it is the French that have a term for
these kind of unforeseen events.
"Force majeure," or act
of God, is arguably not an exaggeration when comes to the impact recent events
in Vietnam have had on VNM. The arrest of tycoon Nguyen Duc Kien, one of the
founders of the Asia Commercial Bank, has struck fear in the hearts of
investors that previously had not been shy about embracing VNM or Vietnamese
equities.
Predictable VNM's fall from grace
over the past week was nothing if not predictable. Like so many emerging
markets ETFs, though it should be noted Vietnam is classified as a frontier
market, VNM is heavily allocated to financial services stocks. Add up stocks
labeled banks, diversified financials and insurance firms and there is nearly a
third of the fund's weight. So it is not surprising that financial services
sector strife would damage this ETF.
Now investors, particularly
foreigners, are apt to view Vietnam's banking systems as unstable and corrupt.
In the wake of Kien's arrest, that is a natural reaction. However, it is also
fair to say Vietnam is not the only country in the world with banking issues.
For example, "stable" is not the adjective to be used to describe
Europe's banking sector.
What is lost amid all the
negativity now surrounding Vietnamese financials is that the country's banks
had $575 million in excess cash as of mid-April.
Buyers Stepping In With VNM down
7.6 percent in the past five sessions, it is understandable that investors are
taking a cautious approach to the fund, but there are signs of some dip buying
in Hanoi. Vietnamese equities were already cheap relative to the broader
emerging markets universe, but some buyers appear to be using the dip to get
involved with some speculative fare.
During Wednesday's Hanoi session,
buyers stepped in to lift materials, real estate and securities names,
according to the Business Times. Real estate and materials stocks combine for
18.4 percent of VNM's weight.
A Cautionary Tale VNM celebrated
its third birthday earlier this month, so it is fair to say the $265.1 million
fund has been around the block a time or two. For nearly all of its three years
of existence, during which the fund has slid 35.4 percent, VNM has been
volatile.
High inflation and the central
bank's proclivity for currency devaluations have made VNM a tricky bet, but the
cautionary tale that is the Vietnam investment thesis does not end there.
Foreign direct investment is an integral part of any developing nation's
economic picture and Vietnam faces some intense competition for that capital.
Ensconced in controversy and
facing macro headwinds, Vietnam could struggle to attract foreign capital. That
is especially true given that foreign investors have not been shy about pouring
money into other Southeast Asian markets such as Indonesia, Malaysia and
Thailand, all of which qualify as lower risk than Vietnam.
The other side of the coin is
that foreign direct investment to Vietnam has been fair this year. FDI
disbursements totaled $6.25 billion in the year's first seven months, equaling
to 99.2 percent of that in the year-earlier period, while fresh FDI commitments
also reached $7.02 billion, or 67.7 percent of the year-ago figure, the
Business Times reported.
All told FDI to Vietnam this year
could hit $15 billion. A surprise to the upside would indicate some investors
are willing to look past the antics of a few corrupt tycoons to see a bull case
for Vietnam's economy.
As for VNM, the fund's recent
tumble is instructive. A look at the weekly chart shows that over VNM's recent
history, the time to buy has not been when the fund is wrapped in ebullience,
but rather after the dust has settled following high levels of controversy.
That opportunity could arrive in the near-term.
Benzinga.com
Business & Investment Opportunities
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