"I have been listening to the criteria you and David use when measuring the merits of new investments or trades. I noticed that Vietnam traded strongly today and became interested in perhaps buying the VNM ETF. However, I was unsure as to the current status of the monetary policy. I did a quick search and from what I could tell their policies are restrictive. Is the Vietnam market price action displaying interesting characteristics, and if so does a restrictive monetary policy discourage you from investing?

"Thanks for your patience with this as I have only been a subscriber for 60 days."

Eoin Treacy's view Welcome to the Service and thank you for this email which is sure to be of interest to other subscribers. Vietnam has had a serious problem with inflation over the last few years. The currency has taken the brunt of the pressure and has been devalued on successive occasions. Vietnamese demand for gold has been rampant as domestic investors seek to hold assets which the government cannot simply increase the supply of. (Also see Comment of the Day on February 15th 2011).

There has been speculation that the series of Dong devaluations is approaching an end but so far there is no chart evidence to support this view. The Dollar found support in the region of the 200-day MA four weeks ago and a sustained move below that trend mean will be required to question potential for Dong additional weakness.

The Vietnam Index, in local currency, has been ranging with a downward bias since late 2009. It is currently rallying from the lower side and a sustained move above 450 would suggest more than a temporary rally is taking place. The weakness of the Dong will help to restore competitiveness and the Vietnamese economy should come through its travails in a healthier state. However investor confidence is likely to remain subdued until the Dong begins to firm against the US Dollar.

The Market Vectors Vietnam ETF remains in a consistent downtrend, reflecting the weakness of the Dong. It is currently testing the 9-month progression of lower rally highs and a sustained move above $20 would begin to indicate more than a relief rally.