Here’s the Asian market that excites traders now

As Chinese stocks slide, a much smaller Asian market is garnering investors’ attention.

The Shanghai composite index has fallen dramatically in recent sessions, and is down more than 30 percent since the market's mid-June high. But as Chinese stocks continue to tumble, another Asian country may be the new darling for investors.

According to Eric Mustin, WallachBeth Capital vice president of ETF trading solutions, the new market to watch is Vietnam.

"We've been talking to a lot of institutional customers. … They've been asking a lot about Vietnamese equities," Mustin said Tuesday on CNBC's "Trading Nation."

Mustin compares Vietnam to China about a year ago, as the frontier market makes strides toward becoming an MSCI-classified emerging market, which would lead to greater foreign investment. Most recently, Vietnam has courted overseas investors by lifting restrictions on the holdings they can have in Vietnamese equities. Mustin said this will help spur domestic interest as well.

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The country is also approaching the S&P Dow Jones Indices qualifications for an emerging market, according to Erin Gibbs, equity chief investment officer at S&P Capital IQ. "They are one of the strongest frontier countries, and they could very easily go into emerging market status," Gibbs said Tuesday on "Trading Nation."

And for U.S. investors looking at Vietnam now, there's another benefit: diversification.

"There's very little correlation to S&P, which is sort of a holy grail for international and emerging market-focused investors," Mustin said.

He recommends that investors who wish to play Vietnam buy the Market Vectors Vietnam ETF (VNM). While still down on the year, it has far outperformed China ETFs FXI and ASHR.

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Of course, Vietnamese stocks are not right for everyone. Gibbs said Vietnam still needs to focus on several challenges, including stabilizing inflation and increasing its GDP per capita.

"For us as stock pickers, we don't actually get into it unless it's considered developed," she said. "They're still quite a few steps away."

Motorists pass by the Saigon Notre-Dame Basilica in Ho Chi Minh City, Vietnam.
Getty Images
Motorists pass by the Saigon Notre-Dame Basilica in Ho Chi Minh City, Vietnam.

Win Thin, global head of emerging markets strategy at Brown Brothers Harriman, said investors will likely wait for the recent turmoil over Greece's debt uncertainty and China's market crash to end before turning to a more speculative market like Vietnam. (The Shanghai composite regained 5.8 percent on Thursday.)

"Emerging markets are really coming under pressure," Thin said. "What's going on in China is not helping things."

After the selloff, Vietnamese assets could be attractive, he said. But with annual GDP of $171 billion, it's still a long way from taking on China.

"It's very small, so it's more like it's the next Thailand," Thin said. "But it's certainly doing what it can."

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