Vietnam Exports Surge, GDP Grows: ETFs In Focus

Vietnam exports surged, leading the way for higher GDP expansion. The GDP rose 6.17% year over year in the second quarter of 2017 compared with 5.15% in the previous quarter.

Consumer prices increased 2.54% year over year in June 2017 compared with a 3.19% rise in May. The manufacturing Purchasing Managers Index (PMI) declined to 51.6 in May 2017 compared with 54.1 in April 2017.

Per Bloomberg, Vietnam’s exports surged over 20% in each of the three months of the second quarter. The total trade turnover this year so far has been almost $200 billion, while the trade deficit has been $2.7 billion. Trade deficit for June was $200 million.

Export turnover increased 18.9% year over year to $97.8 billion in the first half of 2017. However, import turnover surged 24.1% year over year to $100.47 billion in the same time frame (read: Why No Taper Tantrum for EM ETFs Now).

After a dismal performance in the first quarter of the year due to Samsung’s production cuts and trade protectionism, the Vietnam’s agenda now is to improve economic policies in order to lure investment. Samsung’s production of Galaxy Note 8 helped Vietnam’s manufacturing to grow 12.1% year over year in the second quarter of 2017.

Let us now discuss the most popular ETF focusing on providing exposure to Vietnam (see all Asia-Pacific Emerging ETFs here).

VanEck Vectors Vietnam ETF (HM:VNM)

This fund seeks to provide exposure to equities of companies that are either based out of Vietnam or derive at least 50% of their revenues from the country.

It has AUM of $301.1 million and charges a fee of 66 basis points a year. From a sector look, the fund has high exposures to Financials, Consumer Staples and Consumer Discretionary, with 20%, 19.9% and 15.4% allocation, respectively (as of May 31, 2017). The fund’s top three holdings are Vietnam Dairy Products Jsc, Vingroup Jsc and No Va Land Investment Group Corp with 8.29%, 6.86% and 6.53% exposure, respectively (as of May 31, 2017). The fund has returned 3.89% in the last one year and 13.65% year to date. As such, VNM currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

Let us now compare the performance of VNM to a broader Frontier markets ETF, FRN.

Guggenheim Frontier Markets ETF (AX:FRN)

This fund seeks to provide exposure to equities of companies based out of Frontier markets or markets that are in early stages of development but are more developed than the least developing countries.

It has AUM of $67.79 million and charges a fee of 70 basis points a year. From a geographical perspective, the country has high exposures to Kuwait, Argentina and Vietnam, with 14%, 13% and 9% exposure, respectively. From a sector look, the fund has high exposures to Financials, Energy and Telecommunications Services, with 35.01%, 12.62% and 9.5% allocation, respectively (as of May 31, 2017). The fund’s top three holdings are Mercadolibre Inc, Guaranty Trust Bank and Copa Holdings SA-Class A with 6.10%, 5.51% and 5.06% exposure, respectively (as of June 28, 2017). The fund has returned 24.35% in the last one year and 19.29% year to date. As such, VNM currently has a Zacks ETF Rank #3 with a Low risk outlook.

Below, is a chart comparing the year-to-date performance of the two funds.

Bottom Line

Despite the positives, the negatives cannot be ignored. The Vietnamese economy faces high risks from trade protectionism and potential environmental disasters. Therefore, we believe it is best to remain on the sidelines for now.

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