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Vietnam ETF Gets a Lift on Interest Rate Talk

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Vietnam's struggles with inflation have not only hampered the central bank's ability to cut rates, but also prompted a series of currency devaluations in years past.

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Editor's Note: This content was originally published on Benzinga.com by The ETF Professor, Benzinga Staff Writer.

Shares of the Market Vectors Vietnam ETF (NYSEARCA:VNM) are trading higher by 1.9% Thursday and are residing near the highs of the day after Prime Minister Nguyen Tan Dung told a state-controlled media agency that his country has room to lower interest rates.

Vietnam's struggles with inflation have not only hampered the central bank's ability to cut rates, but also prompted a series of currency devaluations in years past. Vietnam's full-year inflation could come in around 7% for 2012, below the 7.5% goal of the government, Reuters reported, citing the Vietnam Economic Times.

Vietnam's benchmark interest rate, currently 9%, has not been cut in more than two years. With high lending rates charged by banks to businesses and a slowing Vietnamese economy, banks, business owners, and market participants in Hanoi have been clamoring for the central bank to cut rates.

While VNM is sporting an impressive year-to-date gain of about 19%, most of that upside was accrued in the first quarter. The ETF proceeded to struggle in the second and third quarters following the arrests of multiple Vietnamese banking luminaries and news of a rising number of bad loans.

However, the ETF has been showing signs of life in recent weeks. In the past month, VNM is up 10.6% and today's move to the $17.30 area is the first time VNM has resided in that price range since August.

The Reuters piece highlights the fact that Vietnamese banks have "ample funds," something Benzinga noted in the second quarter when reporting that Vietnamese banks had $575 million in excess cash.

Strong bank balance sheets and improved sentiment toward Vietnamese financial services are two factors critical for VNM's potential upside heading into 2013. The ETF, which has almost $277 million in assets under management, devotes a combined 47% of its weight to banks, real estate firm, insurance providers, and companies classified as diversified financials.

Adding to the ebullience for VNM on Thursday is the ETF's volume. At a time of year when traders are away from their desks and trading volume across many asset classes slows to a crawl, nearly 183,000 shares in VNM have changed hands today. That is more than 28% above the daily average.

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