Slump Has Vietnam ETF Look Inexpensive

The VanEck Vectors Vietnam ETF VNM has shed 5.13% over the past month, whittling its year-to-date gain to just 6.78% while prompting some market observers to say stocks in the Southeast Asian economy are inexpensive.

While some traders may be searching for Vietnamese value, a familiar issue is rearing its head: the lack of depth in the country's equity market. As in, there just aren't many publicly traded companies there. VNM tracks the MVIS Vietnam Index and holds 25 stocks and that's with a fairly liberal index qualifier.

VNM's index “includes securities of publicly traded companies that are incorporated in Vietnam or that are incorporated outside of Vietnam but have at least 50% of their revenues/related assets in Vietnam,” according to VanEck.

Why It's Important

“Trading volume in Vietnam’s stock market remains tiny compared with other Southeast Asian countries, even for the nation’s large caps,” according to Bloomberg.

That can make stock picking tricky, underscoring the allure of VNM's basket approach. The $439.4 million exchange traded fund allocates over 60% of its weight to its top 10 holdings, an unsurprising level of concentration given the small size of the Vietnamese equity market. The ETF's top three holdings combine for more than 22% of its roster.

Adding to the allure of VNM is that some professional investors is that many international investors hold Vietnamese stocks for long time frames, contributing to the market's tight liquidity and above-average trading cost, notes Bloomberg.

VNM allocates almost 41% of its weight to the real estate and consumer staples sectors, groups that do offer some liquidity in Vietnam because they're chock full of large-cap companies.

What's Next

Vietnam is angling for a promotion to the MSCI Emerging Markets Index and as such, policymakers there are taking steps to liberalize financial markets. Speeding up that process could be an assist to equity prices.

“Hopes that privatization will help market liquidity are also dimming,” according to Bloomberg. “While the Vietnamese government has made a push to accelerate the revamp of rules for state-owned enterprises, the privatization process has been slowing.”

However, investors seem encouraged as highlighted by year-to-date inflows of nearly $102 million to VNM.

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