By Steven Orlowski
The Vietnamese economy has excellent long-term prospects, but short-term difficulties, as the country struggles in the face of a global slowdown. How should you play it?
Hanoi skyline, Vietnam
There's no question Vietnam's geographic location will serve it well in the coming decades. Its eastern border is entirely exposed to the South China Sea, its northern border is shared with China, and it's in close proximity to other emerging and frontier economies: Thailand, Malaysia, the Philippines and Myanmar.
Over the past 30 years, Vietnam has seen its per capita GDP grow more than 10-fold. However, as noted recently by Emerging Money's Sean Geary, efforts by the State Bank of Vietnam to stimulate growth this year have fallen significantly short. So although the long-term progress of the Vietnamese economy should continue, stubborn short-term problems likely remain.
In the ETF universe, there is only one way to play the Vietnamese economy: the Market Vectors Vietnam ETF (VNM). VNM is fairly liquid for an ETF that targets a smaller market like Vietnam. It averages between 150,000 and 200,000 shares per day, and offers a dividend yield of about 1%.
Although the long-term outlook for the Vietnamese economy is good, the charts indicate a short-term slowdown. The one-year chart below displays a sideways trend with great volatility.
Compared with the S&P 500 one-year chart below, VNM is showing short-term weakness.
The three-year chart and the full history demonstrate a much more problematic picture. Despite some outlier spikes above and below the trend, the main channel is definitely downward.
Again, compared with the S&P 500, VNM at times appears to be negatively correlated to the U.S. index.
Because we are charting the Vietnam ETF and not the actual Vietnamese economy, the ETF can at times perform exceptionally poorly and fail to reflect opportunity. As the investment cliché goes, "The time to buy is when there is blood in the streets." By the look of VNM, the streets are bloody. If the global economy worsens, there could be more downside for this ETF.
However, the long run for both the Vietnamese economy and the ETF is promising. If you invest in VNM today, do so with the idea that it will be a very long-term buy-and-hold situation. At the very least, you should put it on your watch list, because over time VNM should reverse course and is likely to provide substantial returns.