Vietnam’s ‘frontier’ market thriving
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
Given the selling pressure over the past five days, of the 55 countries that we follow, only Vietnam, Egypt, and the Philippines have been able to remain positive over that time period. So, what do these three countries have in common? Well, to start with, they are all emerging markets, and in the case of Vietnam, it is more specifically described as a frontier market.
In 1999, Dr. Vladimir Kvint, economist and president of the International Academy of Emerging Markets, published this definition of an emerging market: “a society transitioning from a dictatorship to a free-market-oriented economy, with increasing economic freedom, gradual integration with global marketplace …, an expanding middle class, improving standards of living, social stability and tolerance.”
Like a sea captain throwing all unnecessary cargo overboard in order to lighten his ship, some investors are selling stocks of countries over others with a purpose. Take Greece for instance, the worst-performing country this week, with the FTSE/Athex 20 Capped index down 9.33 percent over the past five trading days. In a situation like we have today, there is a lesson to be learned by watching what investments float to the top, or in other words, which countries investors are showing favoritism toward.
For the week, the Market Vectors Vietnam index is higher by 1.56 percent over the past five trading days, while the Market Vectors Egypt index has gained 1.50 percent and the MSCI Philippines has risen 0.29 percent over the same period. Of the three, only Vietnam can claim longer-term gains with the Market Vectors Vietnam index holding on to an 11.81 percent gain over the past three months. Of course, there is a story behind each country and why it looks particularly attractive to investors at this time.
For example, as of the end of the second quarter, Egypt’s GDP was higher by 2.5 percent year over year and up 1.4 percent over the first quarter. For the month of May, industrial production grew by 8.2 percent over the prior year. However, more importantly, the German government recently lifted its travel warning regarding travel to Sharm el-Sheikh. With Germany the largest source of tourists to Egypt, this should further assist Egypt’s recovery.
Additionally, the Egyptian government has announced it plans to repay all debts to foreign energy companies by 2017, having previously said it would repay only half its debt. BP now plans to invest $10 billion in Egypt’s natural gas sector over the next five years.
The point is, there is usually a story behind the numbers if you look for it. Even if you can’t find the cause, you can always let price be your guide, particularly during stormy seas.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.