Tag Archives: vietnam

Trans-Pacific Partnership Deal: Time For Vietnam ETF?

It looks like time has come for Vietnam to disentangle from the heavy reliance on China as a trading partner. The recently enacted Trans-Pacific Partnership (TPP) trade pact, reached after more than five years of negotiations between the member nations, will make Vietnamese goods reach the global market. TPP is the biggest trade agreement in history aimed at reducing tariffs and setting common trading standards for the 12 Pacific Rim nations, including the U.S., Canada, Japan, Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. According to Vu Huy Hoang , Vietnamese Minister of Industry and Trade, TPP will enhance Vietnam’s GDP by $23.5 billion in 2020 and $33.5 billion in 2025. In addition, it will boost the country’s exports by $68 billion in 2025. Currently, TPP member nations represent about 40% of global GDP and 30% of global trade. The deal will open up trading avenues for key export products of Vietnam such as textile, garment, footwear, and seafood in broader market such as the U.S., Japan, and Canada due to their ultra low import tariffs. So far, Vietnam’s trade balance was heavily biased toward China. In the first nine months of the year, China remained the country’s largest trade partner with trade revenues of approximately $50 billion, per Vietnam’s General Statistics Office. However, Vietnam is experiencing weakening demand from China due to its economic slowdown. Therefore, the deal comes at a perfect time. The deal is yet to be ratified by lawmakers in member countries. It is expected to easily pass through Vietnam’s legislature due to its favorable impact on the economy. Vietnam Economy Vietnam’s economy has already been benefiting from low energy costs and very low inflation. Last month, inflation dipped to zero for the first time ever, as per General Statistics Office. Average price gains were less than 1% in contrast to a five-year average of more than 9% till 2014. Lower energy costs led to a 29% rise in new businesses to 68,347 units in the first nine months of the year. Inexpensive labor and devaluation of the Vietnamese dong for the third time in a year by the country’s central bank have also been boosting the country’s exports and attracting foreign investments. Bloomberg data showed that the country’s exports went up 9.6% year over year to $120.7 billion in the first nine months of the year. In the same period, pledged foreign investment soared 53.4% while disbursed foreign investment rose 8.4% from year-ago levels. General Statistics Office estimates revealed that Vietnam’s GDP grew at the fastest pace of 6.3% since 2008 during the first half of the year. The growth is higher than 5.2% in the same period last year and 4.9% in 2013. The government is on track to reach the four-year high GDP growth of 6.2% this year. According to Asian Development Bank, Vietnam is likely to record the fastest growth in 2015 among the five major Southeast Asian countries tracked by the bank. Thanks goes largely to burgeoning private spending, export-led growth and increasing flow of foreign direct investment. Buoyed by the growth potential, World Bank has predicted that Vietnam’s extreme poverty rate (people living under the income level of $1.9 per day) will decrease to only 1% in 2017 from 2.8% in 2012. Moreover, people living under the income level of $3.1 per day are expected to decline to 6.7% in 2017 from 12.3% in 2012. ETF in Focus The TPP deal as well as the recent spate of optimistic economic data definitely turns our attention to the sole ETF focused on Vietnam (nearly 80%), Market Vectors Vietnam ETF (NYSEARCA: VNM ). VNM seeks to match the performance and yield of the Market Vectors Vietnam Index, measuring the performance of stocks listed in the Vietnamese stock index which generate at least 50% of their revenues from within the Vietnamese economy. The ETF holds 32 stocks, mostly from the financial sector (44%), followed by energy (16.3%) and consumer staples (14%). Its top three holdings include Vincom, Bank for Foreign Trade of Vietnam and Saigon Thuong Tin Commercial. The fund has amassed $425 million in assets and trades in a volume of 450,000 shares per day. It charges 76 bps in fees and returned about 8% in the last one month. Original Post

Vietnam Steps Into Emerging Markets Spotlight

By Tim Maverick These days, when investors hear the words “emerging market,” they immediately run in the opposite direction. The Institute of International Finance reports that investors pulled $40 billion out of emerging markets in the third quarter alone. That’s the fastest pace since the height of the financial crisis and the largest outflow of funds since the fourth quarter of 2008. But as a contrarian investor, I’m intrigued. These outflows made me wonder if, in the panic for the exits, someone may have overlooked a gem. And sure enough, shining like a beacon in the dark, was Vietnam. According to researchers at Capital Economics, Vietnam is one of just five emerging nations, as well as the only nation in Asia, whose economy is growing above its average growth rate since 2010. Economists forecast that Vietnam’s $186-billion economy will grow at 6.1% this year and 6.2% in 2016. This follows growth of 5.2% in 2012, 5.3% in 2013, and 6% in 2014. Capital Flowing to Vietnam Vietnam has been able to attract productive capital inflows recently. In fact, it ranks seventh among all countries, including the United States and China, in foreign direct investment (FDI). Most of that money is going into manufacturing. Vietnam is highly competitive in low-tech industries like textiles and footwear. But importantly, it’s also competitive in high-tech manufacturing. Vietnam has become a major exporter of smartphones, for example, and Samsung has one of its largest global smartphone facilities there. Thanks to the Vietnamese government, the economy’s momentum should continue. The government lifted the 49% ownership cap at a number of listed companies, which will allow foreign companies to invest heavily – or even take over – some Vietnamese firms. In addition, the government has tamed inflation. In 1988, inflation was at an incredible 774%! Four years ago, it was still at 22%. Two years ago, it was down to only 6%. And today, inflation is negligible. Vietnam’s Emerging Consumer Class The growth of manufacturing jobs in Vietnam is changing the face of the country. Here are just a few examples: The country has one of Asia’s fastest urbanization rates, which is creating a consumer middle class. According to the CIA World Fact Book, about a third of the population is now urban. The annual urbanization rate from 2010-15 is just under 3%. Vietnam is now the fastest-growing auto market in Southeast Asia. Through August, year-on-year car sales were up a whopping 62%. Vietnam’s internet penetration rate is rising faster than anywhere else in the world. With more than 40 million people connected to the internet, Vietnam has more users than any other country in Southeast Asia. Not surprisingly, Vietnam has been Asia’s top performer in 2015. Its gain is only about 3.5%, but that looks fantastic compared to other stock markets: It’s still relatively cheap, too, at just 12.5 times estimated earnings. And what really caught my eye is that the market is still trading about 50% below the peak level hit in 2007. The only easy way for U.S. investors to play Vietnam is through an exchange-traded fund – the Market Vectors Vietnam Fund (NYSEARCA: VNM ). This ETF’s portfolio consists of 30 stocks, and it has about 75% of its assets invested directly into locally listed Vietnamese stocks. VNM has a very reasonable expense ratio of 0.7%. The big drawback is that VNM has underperformed Vietnam’s index, showing a year-to-date loss of about 19%. This is likely due to the fund’s over-weighting in the most liquid, financial stocks, as well as energy stocks. You can get much better performance with closed-end funds focused on Vietnam, which are traded in the over-the-counter market. The most liquid of these is the Vietnam Opportunity Fund ( OTCPK:VCVOF ). But even this one is very thinly traded. The advantage is that it’s trading 18% below its net asset value, so you’re buying assets at a discount in an already cheap market. Finally, when – not if – emerging market sentiment turns, the upside could be substantial. Original Post

The Long-Term Superiority Of Frontier Markets, Emerging Markets, And Gold

Summary Higher value will be found in frontier and emerging markets in the future. I plan to focus solely on frontier and emerging markets in Asia, Latin America, and Africa. The threats these markets are facing have created low valuations, and consequently a flurry of buying opportunities. I was extremely grateful to hear that the Fed decided to delay hiking interest rates, as this would have resulted in an unnecessary relegation of frontier and emerging markets. A strong USD, low commodity prices, and low investor confidence in frontier and emerging markets has resulted in extremely low valuations. Therefore, there are a flurry of investment opportunities available in frontier and emerging markets, for those willing to take a long-term view of these markets’ potential. A rationally constructed portfolio, with low valuation, invested into high-growth frontier and emerging markets, is highly unlikely to fail in the long term. As a Seeking Alpha contributor, my objective is to promote the superior long-term value of frontier and emerging markets in Asia, Latin America, and Africa. The FX risk of frontier and emerging markets is certainly justified by the high growth, low valuation, and high dividend yields. I am skeptical of the recent increased strength of the USD, and personally prefer investing in gold, frontier markets, and emerging markets. Vietnam: Low Valuation + High Growth = Paradise In my opinion, Vietnam is clearly the most superior destination for investment in Asia. I recently posted an article on Market Oracle explaining the growth of the Asian Hedge Fund industry, which mentioned that Vietnam was the superior location for investment, due to high growth and low valuation. I remained shocked as to why a large portion of investors are still deciding to take a wait-and-see attitude with Vietnam, only to potentially arrive too late, when valuation is higher. Increased consumer spending has been a substantial catalyst for Vietnam, which recently experienced annual GDP growth of 6.44% . Vietnam’s stock market has had a P/E of approximately 12, a far cry from the valuations in other Asia. The fusion of low valuation and high growth in Vietnam results in the country being a superior destination for value investors. Moreover, the Vietnamese dong has been a relatively stable currency, and the FX risk is well worth taking, considering the low valuation, high growth, and high dividend yields. Investors can invest in the VinaCapital Vietnam Opportunity Fund( OTCPK:VCVOF ) and Vietnam Holding Ltd.( OTC:VNMHF ) on the US OTC market, although higher liquidity can be found on the London Stock Exchange Listings. Anytime I mention Vietnam, I also highly discourage investors from investing in the Market Vectors Vietnam ETF(NYSEARCA: VNM ), based it on its poor historical performance. India: Small Cap Approach India’s economy has also had substantial growth, with most recent annual GDP Growth of 7% . As ETFs that invest their assets in India generally have high valuation, I have previously promoted the small cap approach to India. Small cap ETFs have lower valuation, and have had substantial earnings growth. This can be accessed through the Market Vectors Small Cap ETF(NYSEARCA: SCIF ) and the EG Shares India Small Cap ETF(NYSEARCA: SCIN ). Other favorable aspects of India include projections for continued high economic growth, high growth driven by consumer spending, relatively low inflation, increasing disposable personal income, and the country having the world’s largest youth population. The Philippines: High Growth at a High Price The Philippines has been experiencing substantial economic growth, with some noteworthy developments including the high growth of the business process outsourcing industry and the growth of townships outside of Manila. While the investment environment and growth is favorable, its appeal is somewhat offset by the high valuation. The Philippines’s stock exchange currently has a P/E of 25.05 , and the iShares MSCI Philippines ETF(NYSEARCA: EPHE ) currently has a P/E of 18. The Philippines can certainly be characterized as a high growth, favorable investment environment, although the valuation is a bit too high. Indonesia: Approach with Caution Indonesia is certainly no economic paradise in Asia, but I have identified a specific buy opporutnity for the Aberdeen Indonesia Fund(NYSEMKT: IF ), due to its low valuation and high discount. Favorable aspects of investing in Indonesia include growth in consumption, recent annual GDP growth of 4.67%, and high loan growth rates. I would not recommend investing in other ETFs with higher valuation, due to the substantial inflation and FX risks that Indonesia presents. Pakistan: A Contrarian Suggestion Pakistan is certainly a contrarian place to suggest , although the country’s decreasing terrorism and stock market’s yearly gain of 16.31% certainly justify this as a viable suggestion. Valuation is substantially low given the consistent rise of the Karachi Stock Exchange, making now a strategic time to enter. The newly launched Global X MSCI Pakistan ETF(NYSEARCA: PAK ) provides exposure to a variety of publicly listed companies in Pakistan, and currently has a P/E of 9.12. Chile: Latin America’s Highest Credit Rating Chile is another excellent site for investment , although its economic growth has been offset by the plunging price of copper. However, the country is continuing to fare well in terms of economic growth, and has the prestige of its banking industry to offer to investors. Chile’s banking industry has the highest credit rating in Latin America, and three of its banks are available to US investors at extremely low valuation. These banks include Banco de Chile (NYSE: BCH ), Banco Santander Chile (NYSE: BSAC ), and CorpBanca (NYSE: BCA ). General exposure to Chile’s economy can be accessed through the iShares MSCI Chile Capped ETF (NYSEARCA: ECH ) Colombia: Rebound I have also been following Colombia, based on my conclusion that low oil prices have unjustly lowered the valuation of many companies in Colombia, particularly in the banking industry. The most convenient way for investors to gain exposure to Colombia is through the Global X MSCI Colombia ETF (NYSEARCA: GXG ) which currently trades at 9.02, a far cry from its 52 week high of 19.72. Despite the current low oil price, Colombia has still been able to economically thrive and lead Latin America in terms of economic growth, with most recent annual GDP growth of 3% . A rebound in oil prices is essential for full recovery, but now is certainly an excellent time to investigate investment opportunities in Colombia. Investors can gain exposure to Colombia’s high growth banking industry through BanColombia S.A. (NYSE: CIB ) and Grupo Aval Acciones Y Valores S.A. (NYSE: AVAL ). Nigeria: Strength in its Newly Diversified GDP I have previously mentioned that Nigeria’s newly diversified GDP offsets the risk of the current low oil price environment. Moreover, while the threat of Boko Haram is substantial, it can not offset the high growth of consumer products, construction, and banking industries in Nigeria. The Global X MSCI Nigeria ETF (NYSEARCA: NGE ) offers very convenient exposure to Nigeria, with my biggest concern being the high valuation of the consumer products industry. The construction and banking industry are the most favorable sites for investment, with low valuation and high growth. The fund’s P/E is currently 8.22, which further justifies the logic of investing in Nigeria, although a further plunge in oil prices would prove to be damaging to the fund in the short term. Gold: On the Rise after The Fed’s Delay The Direxion Daily Junior Gold Miners Bull 3X ETF (NYSEARCA: JNUG ) rose by 10.63% after the Fed announced its decision to delay hiking interest rates. Historically, this fund has traded substantially higher, before QE in 2014. The historically higher price of gold, and this fund in particular, presents opportunities for investors willing to take a long term bullish view on gold. Volatility of this fund has been substantial, but its recent bottoming out presents opportunity. Investors should be willing to hold long term, as some financial experts have mentioned the likelihood of gold falling near $800/ounce. JNUG data by YCharts Conclusion To quote Jim Rogers , ” The US Dollar is not a safe haven, but people think it is; that’s why they put money there.” The rise of the USD, and its prestige as the world’s reserve currency, should be questioned by those investing in companies in the United States. Gold is certainly a conservative alternative, for those who do not want to risk investing in frontier and emerging markets. Furthermore, I consider the high growth environment of frontier and emerging markets to be superior to options in the United States. Plunging commodity prices and the strong USD are relevant threats to be acknowledged, but will be unsuccessful in presenting a long term threat to frontier and emerging markets. I do not focus on general emerging market funds, due to the discrepancies in opportunities in emerging markets. Thailand Malaysia are two examples of countries that I am concerned with, and would not invest in. Proper due diligence can result in a successful value based investing in frontier and emerging markets. The undertakings of the Fed will not be able to offset this in the long term. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I am/we are long JNUG, GXG, NGE, IF, BCA, BCH, BSAC. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.