Investing in Frontier Markets: Vietnam’s Recent Rally Bodes Well For Long-Term Growth For ETFs

Stocks on Wall Street readers know that we’ve been bullish on Vietnam. Bloomberg agrees with our outlook. TheBloomberg Markets, November 2012 list of the most promising Frontier markets for investors ranked Vietnam as #1.  United Arab Emirates as #2 – a market we also think has strong growth potential.

It’s no secret that growth in the U.S. and Europe over the next decade will be outpaced by the BRIC’s and emerging markets.  Adventurous investors looking for even more attractive growth potential should also consider Frontier markets.  Frontier markets tend to be smaller than emerging markets.  Shares of frontier companies are also harder to trade than those of emerging countries.

We like Frontier markets that are moving to Emerging Markets.  Developed capital markets are key to becoming an emerging market.  So, we’re most interested in economies where the stock market is developing and companies are beginning to get access to capital.  Also, it’s worth noting that weakness in China tends to get picked up by Frontier Markets.  Sectors that show the most promise in Frontier markets are technology, energy, consumer discretionary and industrials that benefit from infrastructure improvements.

Vietnam fits the bill on all counts.  It has enjoyed a strong and consistent average GDP growth of 7.2% annually since 2000 and projected cumulative GDP growth from 2012-2016 is 31.4%.

The main ETF tracking Vietnam is the Market Vectors Vietnam ETF (VNM) sank 47% in 2011 and was one of the worst performers in the entire emerging world which fell by an average of 21% in 2011.  These horrible losses were largely due to runaway inflation.  The huge drop however opened up a great buying opportunity, as result back in November 2012, we recommended investors to buy shares of VNM as we believed VNM was capable of producing huge gains.

VNM has performed just how we expected as shares are up +38% over the past 7 months. Investors who have a high-risk tolerance may want to consider making a play on this Vietnam ETF. Make sure to checkout Stocks on Wall Street this week to read our detailed report on Vietnam’s long-term investment outlook.

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