Vietnam ETF Holds Second-Half Allure

Plenty of emerging markets ETFs have swooned during the second quarter. The

, which actually tracks a frontier market, is no exception. At the start of trading Thursday, VNM sat with a 10.4 percent second-quarter loss. Investors that have actively followed VNM in the past may be apt to think 2013's second-quarter loss is not all that bad compared to the ETF's 2012 plunge during the second and third quarters at the hands of

. That decline offered excellent buying opportunities for investors bold enough to roll the dice on Vietnam as VNM surged in the fourth quarter and into the early part of this year. Past performance is no guarantee of future sequels, but things are shaping up nicely for VNM as an ETF with credible second-half rebound potential. For the patient, it is worth noting Vietnam is aiming for GDP growth of six percent next year, up from this year's expected pace of 5.5 percent. Inflation there has cooled and is expected to be about eight percent this year with the government

in 2014. Following the stunning repudiation of emerging markets that started in earnest last month, plenty of these markets and the corresponding ETFs now sport attractive valuations. Not all markets with perceived levels of weakness will reward investors, but VNM could be a compelling opportunity with Vietnam's benchmark index trading at less than 11 times earnings, a three-month low. VNM traded with a P/E ratio of 13.6 and a price-to-book ratio of 1.6 at the end of May,

. It is reasonable to expect those numbers have since come down and it is a fact that VNM sports discounted valuations relative to the

where Vietnam is the tenth-largest country weight. Even as investors sold a net $71.1 million of Vietnamese stocks this month through Tuesday,

, some fund managers see opportunities with Vietnamese banks and property firms. Those views are noteworthy not only because Vietnam has formed a TARP-esque program

of billions of dongs in bad loans and sour debt, but also because VNM devotes 36.2 percent of its weight to the financial services sector. The ETF's three largest holdings are financials. Bad debt at Vietnamese banks was 4.51 percent of total loans at the end of the first quarter compared with 7.8 percent at the end of 2012, Bloomberg reported, indicating that if the government statistics are to be believed, the country is at least making progress on the bad debt front. Investors with longer-term time horizons, an admittedly difficult proposition with VNM given the ETF's penchant for volatility and its 0.76 percent annual fee, should note Vietnam holds some dividend potential. The country's state-run companies

and they are not paying dividends back to the government. There can be no guarantees, but Hanoi desperately wants to increase foreign direct investment. A good starting point would be to force state-controlled firms to payout a certain percentage of profits in the form of dividends. For more on ETFs, click

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