Emerging Market #2 Vietnam
Vietnam is like China 20 years ago. The Market Vectors Vietnam ETF (NYSE: VNM) is the only listed Vietnamese investment in the U.S. market. Vietnam is a remarkable growth story as GDP compounded at 7% a year over the past decade and the country never entered a recession in 2009. The labor force adds roughly 1 million workers per year, which is why the government is determined to continue its pro-growth policies. Other countries in the region that offer similar growth characteristics, but are even less developed than Vietnam, are Laos and Cambodia.
Vietnam’s stock market did not do much in 2010, but there are signs that 2011 is starting off on the right foot. Moody’s downgraded the country’s debt rating in December, but the stock market rallied after a sovereign debt downgrade, which is a sign that stocks have digested all the bad news and the market is looking forward to better times.
The government has made commitments to address the trade deficit and the relatively low level of foreign investment inflows which are necessary for the economy to pick up steam. Judging by the stock market reaction to the debt downgrade, it appears that investors believe those commitments.
Emerging Market #3 – Russia
Russia is outperforming the other BRICs. If you look at the MSCI country indexes for the BRIC markets, you see some staggering differences in the month of January. China is practically flat (-0.5%), India is down a lot (-13.1%), and Brazil is down a little (-4.4%), while Russia is up (+4%).
India is down because of concerns that accelerating global inflation will affect that economy disproportionately more because the central bank there is “behind the curve” and rate hikes will slow it down. Russia and Brazil tend to outperform in inflationary times, but I think there may be more here to Russia’s outperformance.
The Russian market carries the highest leverage to commodity prices, yet on days where oil and other resources saw large corrections in January, the Russian market held up very well. This is very different action to what I have been used to seeing before.
I think that by allowing BP (NYES: BP) to make a large investment in the Russian state-owned oil company Rosneft, the government has signaled a major change in its attitude toward foreign investors in the resources sector. If this change in course by the Russian government continues, the Russian valuation discount to the other BRIC markets may close.
That makes the Market Vectors Russia ETF (NYSE: RSX) a beneficiary of what looks to be a long-term trend.