The move is smart for two reasons. First, it should boost stock market liquidity. That may, in the not-too- distant future, bump Vietnam up into the emerging market category from its current frontier market status.
But more importantly, it will aid the government’s move toward privatizing state-owned firms. More private investment is likely to get these sluggish companies moving again.
These hopes have fueled a surge in the Vietnam stock market in July as locals rushed in ahead of the expected foreign investment surge. Its main index rose by about 10% since the government’s announcement.
Vietnamese investors know that 30 of the largest companies – accounting for about a quarter of total market capitalization – are trading at or very near their foreign ownership limits.
The foreigners have already rushed in to an extent. In the first six months of 2015, foreigners bought more than $233 million worth of Vietnamese stocks. That is well above the $128 million for the whole of 2014. But that is mainly institutional money.
How to Invest
How can the average person invest into Vietnam, especially since no Vietnamese stocks are traded on U.S. exchanges?
The best way is through an exchange-traded fund from Van Eck. It’s called the Market Vectors Vietnam ETF (NYSEARCA:VNM).
The fund holds 30 stocks and has 77.7% of its assets invested directly into locally-listed Vietnamese stocks. The fund has a very reasonable expense ratio at 0.70%.
The Vietnam ETF is a frontier market play well worth looking into, particularly since it’s still down about 3% year-to-date. The lifting of the foreign investment cap on many companies should give the stock market a boost in the months ahead. That bodes well for the Market Vectors Vietnam ETF.
This article is brought to you courtesy of Tony Daltorio from Wyatt Investment Research.