Quiet Rebound for the Vietnam ETF

Of the top-15 non-leveraged ETFs over the past month, seven are China funds. South Korea funds have been steady, buoyed by speculation of increased dividends while the WisdomTree Japan Hedged Equity Fund (NYSEArca: DXJ) is higher by 6.5% over the past 90 days. [Asia”s Rises Lifts Some Leveraged ETFs]



Risk-tolerant investors have also been rewarded by the Market Vectors Vietnam ETF (NYSEArca: VNM). As we noted in May, VNM is typically weak in the second quarter. In fact, the lone Vietnam ETF still has not posted a gain in the five second quarters in which it has traded (VNM debuted in August 2009).



To be fair, VNM’s 2014 second-quarter loss was modest and the ETF has jumped 4.3% since we noted it might be time to give the fund another look on June 25. [Reconsidering the Vietnam ETF]



There could be more upside ahead of Vietnamese equities, which are among Asia’s least expensive on valuation.



“Overseas money managers bought a net $277.1 million of the country’s shares this year through Tuesday, 5.3 percent more than the whole of 2013,” reports Nguyen Kieu Giang for Bloomberg.



Vietnam’s benchmark VN Index trades at 13.7 times forward earnings, according to Bloomberg. While that is slightly pricy compared to the MSCI Emerging Markets Index, that P/E ratio is only modestly above the 13.35 seen on the MSCI Frontier Markets 100 Index at the end of the second, according to MSCI data.



Vietnam is currently the eleventh-largest country weight in the iShares MSCI Frontier 100 ETF (NYSEArca: FM) with a weight of 2.56%.



Earlier this year, State Bank of Vietnam Governor Nguyen Van Binh told Bloomberg the central bank is urgently trying to enact legislation “for a government-backed asset management company, lenders and investors to buy and sell bad-debt assets and collateral at banks.”



The legislation is crucial because although VNM has tried higher on an annual basis over the past two years, the ETF tumbled in the second quarters of 2012 and 2013 due to fears about the fragility of Vietnam’s banking system, which has been riddled with bad loans and toxic debt. [Vietnam”s Bad Debt Effort Takes Shape]



Non-performing loans resided at 4.84% of total loans by Vietnamese lenders at the end of the second quarter, Bloomberg reported, an important point in VNM’s favor because the ETF allocates 35.8% of its weight to the financial services sector.

Market Vectors Vietnam ETF