First Vietnam ETF (NYSEArca:VNM)

Though it’s still one of the last bastions of communist rule, Vietnam has long left its war-torn past to position itself as the new frontier for capitalist ways.

The country has no ADRs but Van Eck Global’s newly launched ETF, Market Vectors Vietnam (NYSEArca:VNM – News), opens the doors to the largest country in Southeast Asia.

Nearly 70% of the 28 companies in the ETF are based in Vietnam and the other 30% do at least half of their business there. The largest sector weightings are financials at 37%, energy 19%, materials 12%, industrials 12% and consumer staples 11%. About 86% of stocks in the benchmark are small and midcaps. The ETF carries an expense ratio of 0.99%.

The country’s benchmark, VN-Index, which tracks 162 companies on the Ho Chi Minh Stock Exchange, has gained 61% this year.

Macro Picture

Vietnam has attracted $8.7 billion in foreign direct investment in the first half of this year, according to Vietnam’s Foreign Affairs Ministry. A majority of the money, $4.5 billion, was licensed to the hotel and restaurant industry. Industrial and manufacturing sectors took in $1.56 billion. The director of the Foreign Investment Agency projects foreign investments will reach $20 billion in 2009 and rise 20% to $22 billion next year.

Foreign investors are lured by Vietnam’s “highly skilled labor force, young population, relatively low labor costs, and a sense of enthusiasm and entrepreneurship,” says Mark Sidel, a law professor at University of Iowa. He used to manage legal reform programs in the country through the Ford Foundation.

Following the footsteps of Japan, South Korea and China, Vietnam will be the next Asian tiger, says Chris Wolf, co-chief investment officer of Cogo Wolf Asset Management. “If you look at the horizon now, it looks like Beijing in its heyday. It’s construction cranes everywhere,” Wolf said.

Vietnam’s young work force has a 90% literacy rate but earns less than its Chinese counterparts. So Vietnam stands to benefit from outsourcing in China, Wolf added. His firm plans to invest 1%-2% of its $100 million in assets into the ETF.

As the world’s second-fastest growing economy, Vietnam’s gross domestic product may expand between 5% to 5.2% this year thanks to stimulus plans, State Bank Governor Nguyen Van Giau said in a statement this week. Its economy expanded 3.9% in the first half of the year vs. 6.5% the same period in 2008, the General Statistics Office in Hanoi reported in July.

The International Monetary Fund projects a slower pace of growth: 3.3% in 2009 and 4% the following year. It estimates that consumer prices will increase 6% this year and 5% next year.

Through the end of July, exports dropped 13.4% over the first seven months of last year, according to Moody’s Economy.com. Retail sales rose 18.3% in the first seven months of the year from the year-ago period. In 2008, exports totaled $61.3 billion, while imports came in at $77.7 billion, according to the General Statistics Office.

Industrial production in July rose 7.6% from a year earlier, driven mainly by oil and gas and other nonstate enterprises. Oil production — a key export — climbed 18.5% in July to 340,254 barrels a day. Other major export products are textiles and clothes, footwear and seafood.

Investment Risks

Categorized as a frontier market — a notch below emerging — the fledgling Asian tiger may not be suitable for those with weak stomachs.

“The threat of high inflation, a general lack of infrastructure and endemic corruption may present significant hurdles to continued growth,” Van Eck notes in the fund’s prospectus.

“Vietnam cannot be considered a free market economy, as many communist-style policies remain the norm. Also, the recent global investment crisis may derail continued growth of this early-stage emerging economy.”

Though it’s still one of the last bastions of communist rule, Vietnam has long left its war-torn past to position itself as the new frontier for capitalist ways.

The country has no ADRs but Van Eck Global’s newly launched ETF, Market Vectors Vietnam (NYSEArca:VNM – News), opens the doors to the largest country in Southeast Asia.

Nearly 70% of the 28 companies in the ETF are based in Vietnam and the other 30% do at least half of their business there. The largest sector weightings are financials at 37%, energy 19%, materials 12%, industrials 12% and consumer staples 11%. About 86% of stocks in the benchmark are small and midcaps. The ETF carries an expense ratio of 0.99%.

The country’s benchmark, VN-Index, which tracks 162 companies on the Ho Chi Minh Stock Exchange, has gained 61% this year.

Macro Picture

Vietnam has attracted $8.7 billion in foreign direct investment in the first half of this year, according to Vietnam’s Foreign Affairs Ministry. A majority of the money, $4.5 billion, was licensed to the hotel and restaurant industry. Industrial and manufacturing sectors took in $1.56 billion. The director of the Foreign Investment Agency projects foreign investments will reach $20 billion in 2009 and rise 20% to $22 billion next year.

Foreign investors are lured by Vietnam’s “highly skilled labor force, young population, relatively low labor costs, and a sense of enthusiasm and entrepreneurship,” says Mark Sidel, a law professor at University of Iowa. He used to manage legal reform programs in the country through the Ford Foundation.

Following the footsteps of Japan, South Korea and China, Vietnam will be the next Asian tiger, says Chris Wolf, co-chief investment officer of Cogo Wolf Asset Management. “If you look at the horizon now, it looks like Beijing in its heyday. It’s construction cranes everywhere,” Wolf said.

Vietnam’s young work force has a 90% literacy rate but earns less than its Chinese counterparts. So Vietnam stands to benefit from outsourcing in China, Wolf added. His firm plans to invest 1%-2% of its $100 million in assets into the ETF.

As the world’s second-fastest growing economy, Vietnam’s gross domestic product may expand between 5% to 5.2% this year thanks to stimulus plans, State Bank Governor Nguyen Van Giau said in a statement this week. Its economy expanded 3.9% in the first half of the year vs. 6.5% the same period in 2008, the General Statistics Office in Hanoi reported in July.

The International Monetary Fund projects a slower pace of growth: 3.3% in 2009 and 4% the following year. It estimates that consumer prices will increase 6% this year and 5% next year.

Through the end of July, exports dropped 13.4% over the first seven months of last year, according to Moody’s Economy.com. Retail sales rose 18.3% in the first seven months of the year from the year-ago period. In 2008, exports totaled $61.3 billion, while imports came in at $77.7 billion, according to the General Statistics Office.

Industrial production in July rose 7.6% from a year earlier, driven mainly by oil and gas and other nonstate enterprises. Oil production — a key export — climbed 18.5% in July to 340,254 barrels a day. Other major export products are textiles and clothes, footwear and seafood.

Investment Risks

Categorized as a frontier market — a notch below emerging — the fledgling Asian tiger may not be suitable for those with weak stomachs.

“The threat of high inflation, a general lack of infrastructure and endemic corruption may present significant hurdles to continued growth,” Van Eck notes in the fund’s prospectus.

“Vietnam cannot be considered a free market economy, as many communist-style policies remain the norm. Also, the recent global investment crisis may derail continued growth of this early-stage emerging economy.”

Source: http://finance.yahoo.com/news/Van-Eck-Launches-First-ibd-1567192866.html?x=0&.v=1

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