Vietnam,the emerging market ETFs

The thought of Vietnam brings up visuals of military carnage as seen on the nightly news of the 1960's. This is what Vietnam looks like today.

Yet, this small Southeast Asian country is still at war - with inflation. Nearing 20 percent, inflation crushed the Vietnamese economy in 2011. The Vietnamese government has recently taken strong and decisive action to curb inflation and return Vietnam to its previous prosperity.

Vietnam falls into the Emerging Markets sector. Two of the largest emerging market's ETF's Vanguard's (NYSEArca:VWO) and iShares (NYSEArca:EEM) do not list Vietnam among their top 10 holdings geographically. [Related: WisdomTree Emerging Market Small Cap ETF (NYSEArca:DGS), WisdomTree Emerging Markets ETF (NYSEArca:DEM)]

I have not found any Vietnamese stocks listed on the NYSE.

Market Vectors Vietnam ETF (NYSEArca:VNM) is the best way for investors to gain exposure to this truly emerging market.

VNM's holding are weighted in financials at 42.5 percent. Energy comprises 26.5 percent of this ETF with industrials 12 percent, materials 7.7 percent and consumer goods 9 percent. Although financials dominate, this is a diversified ETF and typical composition of an individual country index.

Average volume of 138K shares daily would not be considered heavy volume, but it is by no means illiquid or 'thinly traded'. What's important in the table is relative volume has traded at 2.4x the norm. Somebody is showing a lot of interest in Vietnam - rightly so. With 40 percent off the highs, VNM has a lot of room to move.

The Money Flow Index shows that buyers have come in strong after the December lows. Even more encouraging, the price has broken out of the descending wedge pattern and has made a higher high for the first time on the chart. The +/- Directional Index confirms that the bulls have made a decisive break out.

To test this price action as a true trend reversal, we need to see a pullback and support built. A pullback to $16 (the higher high breakout point) and recovery would be an ideal indication of a turnaround in Vietnam.

Catching a bounce at $16 to ride VNM up to its May 2011 highs would be nearly a 50 percent gain. Not bad for a "war torn" nation.

Under the World Trade Organisation (WTO)'s commitments, in 2012, Vietnam will allow securities companies and 100 percent foreign-invested fund management companies to operate in Vietnam.The first open-ended fund product with scale of 200-500 billion dong will be launched somewhere mid of 2012.

With its extremely cheap stocks on offer, Vietnam, rather than Indonesia, will be a great place to invest in this year, according to Forbes Magazine.

In an article recently published on Forbes Online, Peter Cohan recalls his visit to Singapore in January 2012 where he met with a hedge fund manager having invested in many Asian companies for years.

The hedge fund manager said that Indonesia used to be a great place to do business, but the best opportunity in the region in 2012 is to invest in Vietnam.

He studied the Vietnamese stock market and found 20 stocks with Price/Earnings (P/E) ratios of 2, cash flow growth of 14, and dividend yields of at least 12.

Cohan explained that a stock is cheap if its cash flow - the money left over after paying expenses - is growing faster than the P/E ratio.

A stock is a reasonable value if the ratio between a stock's P/E and its earnings growth or Price/Earnings to Growth (PEG) is 1.0 or below. By that measure, stocks in Vietnam are very cheap at 0.14 - dividing the P/E of 2 by the cash flow growth of 14.

In addition, Vietnamese stocks offer a very high dividend yield.

Their 12 percent yield is extremely high - particularly compared to the sub-1 percent rates that we are used to earning on our bank accounts, Cohan noted.

According to Cohan, the downward trend in the Vietnamese stock market in 2011 offers the chance for private equity investors to buy stakes in some of the country's biggest companies and the purchase is benefitting investors.

Cohan concluded that there are opportunities for businesses to invest in the banking, food and beverage industries in Vietnam, as its population increasingly moves from the lower to middle class income level and banks and food companies are willing to meet their demands.