Investors have long been tempted by China due in part to the country’s rising middle class and an increasing number of wealthy citizens. While those factors remain at play, a more nimble, less controversial market offers its own strong wealth-creation potential: Vietnam. That could spell an opportunity with the VanEck Vietnam ETF (VNM ), the oldest and largest exchange traded fund dedicated to Vietnamese equities.
Vietnam has long been considered a rising star among emerging economies, though its current classification is frontier market. Still, over the past three years, VNM has sharply outperformed the MSCI Emerging Markets index. Additionally, over the past year, the ETF is also soundly beating a broader basket of frontier market stocks.
Going forward, VNM holdings could benefit from rising wealth in the Southeast Asian nation. And it’s already home to 19,400 millionaires.
Vietnam Wealth on the Rise
Emerging and frontier markets are viewed as less safe than their developed counterparts. However, market observers consider Vietnam to be one of the safer markets in the Asia-Pacific region. That’s not a guarantee of reduced volatility or equity market upside, though. But it’s clear Vietnamese wealth is rising and that could be a long-term positive for VNM.
“The Southeast Asian country is forecast to see a 125% increase in wealth over the next 10 years, Andrew Amoils, New World Wealth’s analyst, told CNBC. This would be the largest expansion in wealth of any country in terms of GDP per capita and number of millionaires, according to the firm’s analysis,” reported Lee Ying Shan for CNBC.
Vietnam offers investors other benefits, some of which aren’t yet fully appreciated. Those include favorable demographics and geography and lower labor costs than China. The last point is among the reasons why Vietnam is pilfering technology and textile manufacturing jobs from China.
More jobs bolster the Vietnam rising wealth thesis while contributing to increases in per capita GDP. These are two factors that could support long-term upside for Vietnamese stocks.
The Vietnamese economy and potentially VNM could benefit on another front. At a time when U.S./China geopolitical relations remain icy, some global investors are limiting or reducing foreign direct investment in China. Some of that capital has been steered to Vietnam.
“Vietnam’s stock market is running ahead of its neighbours and pulling a trickle of foreign investment for the first time in months, as its banks bounce back from a credit crunch and the economy charts a path through China’s slowdown,” reported The Star.
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