Vietnam shares fund sprouts in New York

[phuocpham]

Investors wanting to buy a piece of Vietnam can now do so in the well-regulated and relatively transparent precincts of the New York Stock Exchange, where the “Market Vectors Vietnam” exchange trading fund was listed on August 14.

For about two weeks, a tiny new fund has been listed on the mammoth New York Stock Exchange: Van Eck Global’s ‘Market Vectors Vietnam’ fund. ‘VNM’ holds a portfolio of companies that generate at least 50 percent of their revenues in Vietnam, companies like Vietnam Dairy Products (Vinamilk), SacomBank, the Hoang Anh Gia Lai (HAGL) conglomerate, the Hoa Phat Group, and several PetroVietnam subsidiaries. For the moment, at least, the fund is too small (only $14 million in assets) even to make ripples trading on Vietnam’s own stock markets, but its significance may be enormous.

Market Vectors Vietnam is a so-called ‘exchange traded fund,’ and as such, it is the first opportunity for investors to speculate on Vietnam while enjoying the protections associated with dealing on a well-regulated US exchange. Country-specific exchange traded funds, or ETF’s, are not a new idea; the first appeared in 1993 in the US and in Europe in 1999. As of May, 2008, there were 680 ETF’s in the US alone, with $610 billion in assets. Typically, ETF’s have fairly low management costs (Van Eck charges 0.99% of net asset value as its annual fee for VNM), are tax-efficient, and can be traded like individual stocks.

Why Vietnam, and why now?

"Vietnam is one of the world’s most populous nations, and its well-educated, young population -- nearly half of the country’s 90 million residents are under the age of 25 -- provides strong underpinnings for local economic growth," the fund’s manager, Van Eck Global Securities, said in a press release the day before VNM was launched. "As the global marketplace continues to show signs of life, Asian economies, and Vietnam in particular, appear poised to exit the recent downturn with solid fundamentals and strong growth prospects relative to their developed market counterparts."

Vietnam market pros will ‘wait and see’

VNM’s launch was greeted politely by Vietnamese trading firms. The influential Saigon Market News (Saigon Tiep Thi) pointed out that a number of mutual funds offering baskets of Vietnamese stocks are floundering following reverses suffered during last year’s market decline.

Saigon Tiep Thi quoted Vietnam Capital Partners director Nguyen Nam Son that “ETF’s are now found abundantly in the big financial markets. The appearance of ETFs targeted on Vietnam gives investors the chance to choose between an ETF or a conventional mutual fund.”

Vietnamese financial professionals are optimistic that in addition to VNM, other exchange traded funds will sprout on lots of other exchanges, including Tokyo and Seoul, and may provide a convenient vehicle for the mobilization of capital for investment in Vietnamese shares.

“Right now,” continued Saigon Tiep Thi, “there aren’t many signs of a new surge of capital. Some people are saying there is half a billion dollars trying to find an investment opportunity, but it hasn’t yet shown itself.”

Son of Vietnam Capital Partners said that when he met with foreign investors recently, it seemed as though none were really paying attention to Vietnam. “They were all oriented to big developing country markets like India and China,” he said. “It will be a while before they turn toward Vietnam.”