With outstanding first-quarter results, Vietnam has surprised analysts with 7.38% growth mainly in its three key sectors; manufacturing, agriculture and construction activities. The economy expanded rapidly because of a rapid rise in exports driven by South Korea’s electronics giant Samsung (KS:005930) and Taiwanese steel firm Formosa. Currently, Vietnam is the second-most trade-dependent country in South-East Asia after Singapore according to the Asian Development Outlook 2018 report released last month. Their annual trade now exceeds 185% of GDP. This year, the Ministry of Planning and Investment expects the growth to be around 6.7 to 6.8% (Read: Vietnam Exports Surge, GDP Grows: ETFs in Focus).
Will the Growth Continue?
The Vietnamese government itself believes that it is a near impossible task to maintain this growth rate or target anything higher than this. The deputy PM has said in a press conference that due to lower mining output, reduction in import duty, and increasing cost of healthcare, education and food prices will cause inflation close to 2-2.5%, obstructing growth. Vietnam does not have the resources or economic strength to carry on this performance throughout the year. In fiscal 2018-19, the growth is expected to be somewhere around 6.7-6.8% as per the Ministry of Planning and Investment.
Issues in Vietnamese Economy
The Central Institute for Economic Management has found fault lines in the Vietnamese economy. The manufacturing sector is dominated by enterprises which are internationally funded and domestic firms that are bearing high interest rates, logistics costs and informal expenses. Labor productivity in Vietnam is the worst in Asia and needs immediate attention. To continue with the growth model, quality of skilled labor is a prime area of concern. Lack of transparency in land acquisition and construction activities has given rise to shady transactions, which remain unchecked due to weak enforcement laws of the country (read: Are Good Times Over for Emerging Market ETFs?).
(HM:VNM) in focus
VanEck Vectors Vietnam ETF (HM:VNM) tracks the performance of the publicly traded companies in Vietnam MVIS Vietnam Index (MVVNMTR). It has an expense ratio of 0.66% and comprises 37 holdings. The fund has amassed assets of $406 million and has a daily trade volume of 369,000. As far as sector holdings are concerned, Real Estate, Consumer Staples and Financials are the top three holdings with 21%, 19.7% and 16.7% weightage respectively. Vingroup, Vinamilk and Masan Group Corp are the largest individual holdings with weightage of 10.5%, 7.4% and 7.3%, respectively. In terms of country exposure, Vietnam holds 73.6% of its assets while South Korea, Taiwan, Japan, UK and China have a minor exposure each of less than 9%. The fund has returned negatively by 4.03% on a year-to-date basis and has Zacks ETF Rank #3 (Hold), with a Medium risk outlook (read: Vietnam ETF (VNM) Hits New 52-Week High).
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VANECK-VIETNAM (VNM): ETF Research Reports
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