The Vietnam stock market looks very strong. It is one of the strongest winners in the emerging markets universe in the last 6 months. But is the Vietnam stock market still a buy in 2018? And is it easy to get exposure to such an ‘exotic’ stock market?
First, let’s try to determine the indicator for following the Vietnam stock market. The Vietnam stock market ETF, VNM, seems to be the only way to track this market, at least that’s what a first search gives as a result.
However, it is always tricky to rely only on an ETF, for sure in a market that is not very accessible. An ETF can have divergences from the underlying asset or market, think of Bitcoin vs. the GBTC ETF as an example.
Vietnam Stock Market Index: VN
The best gauge for the stock market index in Vietnam is the VN index. It is an index comparable to the S&P 500.
Its historical chart shows (1) that it can be a very volatile market once it rises or falls (2) it has gone through a long time of consolidation (3) it has broken out to all-time highs.
One of the important things we mostly watch is the performance over the last 12 to 14 months. Since Jan 1st 2017 the Vietnam stock market index VN has risen from 697 points to 1199 points, a rise of 72 percent. That is very strong, but history learns that this market can go very fast very high, so the upside potential is there as long as there ongoing global stock market volatility remains ‘contained’. One way to monitor this: as long as emerging markets remain in their breakout zone, above 41 points in the EMM ETF, there is no risk for Vietnam.
Vietnam Stock Market ETF: VNM
The easiest way to get exposure to the Vietnam stock market is through the VNM ETF.
This asset has risen similarly to its underlying index in the last 14 months which is a reassuring sign.
At 21 points, which is mega resistance going back a decade, we can expect volatility and resistance. However, as long as emerging markets in general do not break down, we believe the Vietnam ETF VNM is worth a buy in 2018. We expect quite some volatility before prices break through 21 points though.
On the question whether we prefer India vs Vietnam: we believe India is the less risky way to play the emerging markets breakout while Vietnam is a higher risk / higher reward play. Depending on an investor’s profile one can have a preference for higher vs lower risk. Both markets should do well in 2018 and 2019.