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Vietnam’s ETF Holds Strong Upside Potential

The VanEck Vectors Vietnam ETF (VNM) is up more than 11% this year and has been highlighted as a winner in the US/China trade spat, but some market observers see more potential upside in shares of Vietnamese companies.

Vietnam’s ETF Holds Strong Upside Potential
Nhat Trung08:16 01/08/2019
According to ETF trends, The VanEck Vectors Vietnam ETF (VNM) is up more than 11% this year and has been highlighted as a winner in the US/China trade spat, but some market observers see more potential upside in shares of Vietnamese companies.
VNM, which debuted in August 2009, follows the MVIS Vietnam Index. That index “is comprised of securities of publicly traded companies that are incorporated in Vietnam or that are incorporated outside of Vietnam but have at least 50% of their revenues/related assets in Vietnam,” according to VanEck.
Last year, Fitch Ratings has upgraded Vietnam's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB' from 'BB-'. The Outlook is Stable.
Vietnam's track record of policy-making focused on strong macroeconomic performance has been improving. GDP growth accelerated to 6.8% in 2017 from 6.2% in 2016 supported by the export-oriented manufacturing sector and continued growth in services. Vietnam's five-year average real GDP growth at end-2017 was 6.2%, far above the 'BB' median of 3.4%. 
Fitch expects growth of 6.7% in 2018 in line with the growth target set by the National Assembly, supported by strong inflows of foreign direct investment (FDI), continued expansion in manufacturing and an increase in private consumption expenditure. FDI inflows remained strong in 2017, especially into the manufacturing sector, with registered FDI increasing by around 40% from the previous year to USD21.3 billion.
As such, Vietnam would remain among the fastest-growing economies in the Asia-Pacific region, and fastest among 'BB' rated peers. 
Vietnam's external buffers have improved, with its foreign-exchange reserves in 2017 rising to USD49 billion (around 2.5 months of external current payments, CXP), from USD37 billion at end-2016, supported by large capital inflows and a current account surplus. The improvement was facilitated by the authorities' adoption of a flexible exchange-rate mechanism in January 2016. 
Although the new exchange-rate mechanism could be tested in a stronger dollar environment, the rise in foreign-exchange reserves provides a cushion against external shocks. Fitch projects foreign-exchange reserves to rise to around USD66 billion by end-2018, equivalent to a reserve coverage of 3.1 months of CXP.