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Target VNM as Vietnam Inflation Eases

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK ( ETF Digest) -- For those of you in my generation, the thought of Vietnam brings up visuals of military carnage as seen on the nightly news of the 1960's. But that's history. The Vietnam of today is a tourist destination.

Yet, this small Southeast Asian country is still at war -- with inflation. Nearing 20%, 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 (VWO) and iShares (EEM) do not list Vietnam among their top 10 holdings geographically. I have not found any Vietnamese stocks listed on the NYSE.

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

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

Average volume of 138,000 shares daily would not be considered heavy, but it is by no means illiquid or "thinly traded." What's important in the table is relative volume has traded at 2.4 times the norm. Somebody is showing a lot of interest in Vietnam -- rightly so. With 40% 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 a buildup of support. 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% gain. Not bad for a "war torn" nation.

At the time of publication, the author had no positions in any of the stocks mentioned, although positions may change at any time. This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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