Van Eck, which already offers a number of unique ETF investment plays, has added another innovative product to its lineup. The Market Vectors Vietnam ETF (VNM) debuted on the NYSE Arca Exchange on Friday, the first exchange-traded fund to focus exclusively on the Southeast Asian nation.The ETF will track the Market Vectors Vietnam Index, a benchmark developed by Van Eck Global, the fund’s sponsor and portfolio adviser.
With a population of over 86 million, Vietnam is the world’s 13th most populous nation, meaning it has significant potential for growth based on its size alone. But the country’s GDP is approximately $300 billion ($3,300 per capita) and the equity market capitalization totals only $30 billion, putting Vietnam far below many developed nations.
Over the last year, several ETFs offering exposure to frontier markets have sprung up, providing opportunities to invest in the world’s least developed economies. Frontier status is the lowest classification for national economies, behind “developed” and “emerging.” The Claymore/BNY Mellon Frontier Markets ETF (FRN) was the first U.S.-listed frontier markets ETF, introduced in June 2008. Invesco PowerShares followed shortly thereafter with the MENA Frontier Countries Portfolio (PMNA). FRN and PMNA are up 38% and 7%, respectively, in 2009.
But neither FRN nor PMNA offers exposure to Vietnam, making VNM the first of its kind. The index underlying VNM is comprised of 28 companies, and is weighted most heavily towards financials (36.7%), energy (19.1%), and materials (12.3%).
The Case For Vietnam
The investment case for Vietnam is based upon its young population base, improving living standards and market efficiency, and increases in foreign investment. Half of the nation’s population in under the age of 25, a remarkable ratio that may set the stage for dramatic growth in coming years.
And while the country has a way to go before it reaches “developed” or even “emerging” status, there are signs that Vietnam is headed in the right direction. Nearly 250 firms are now listed on the Ho Chi Minh Stock Exchange, which was virtually nonexistent a decade ago. And the Exchange has signed an agreement with NASDAQ to support the development of a local exchange. The Ho Chi Minh Exchange has gained more than 60% so far in 2009.
An investment in Vietnam is, of course, not without its risks. Vietnam is a single-party state, and the central role of the Communist Party has been repeatedly asserted by both the state’s constitution and actions. Only political organizations endorsed by or affiliated with the Communist Party are permitted to contest elections. Moreover, the U.S. Department of State has described Vietnam’s human rights record as “poor,” citing restrictions on freedom of speech and freedom of the press.
But as the nation has implemented economic policies aimed at stabilizing its monetary framework while continuing to promote growth, there is reason to believe Vietnam has a bright economic future ahead of it. “While Vietnam is currently facing the pressures of inflation and current account deficits as well as the stresses of today’s global financial crisis, the country’s market reforms should help it regain its longer-term growth potential,” said Jan Van Eck, Principal at Van Eck Global. “We believe Vietnam’s young demographic and increasing integration into the world marketplace will continue to appeal to foreign investors.”
And now there’s an easy way for investors bullish on Vietnam to gain equity exposure through an ETF.
VNM has an expense ratio of 0.99%.
Disclosure: No positions at time of writing.