Last year wasn't great for Vietnamese stocks, as Don Lam and Katherine Yip-Geicke readily concede.

But the co-founders of Ho Chi Minh City-based asset manager VinaCapital are optimistic about a market with a price-to-earnings ratio of 9.5 times and World Bank-projected GDP growth of 6.5-7.5% until 2015.

The latter figure is impressive but not stand-out for Southeast Asia, yet the former suggests the Vietnamese stock market could be ripe for entry, as set against a P/E of 14 times in Thailand and 15-17 times in Indonesia. Especially when companies' average earnings growth forecast is 15-20% for 2011.

Things may become even rosier for potential investors in the country next year, once the upcoming Communist Party congress in January is complete and new leaders have been chosen for the one-party state for the next five years.

The authorities have already signalled their interest in putting rules in place for a traditional open-ended mutual fund market, and several firms have been eyeing the possibilities for some time.

Since the local fund industry launched eight years ago, it has been all closed-end products, as the government has wanted to restrict such investment to institutional and high-net-worth investors, says Lam, chief executive of VinaCapital, which has $1.8 billion in AUM.

But there are indications that the regulators feel the market may be mature enough to open up to mass or retail investors, he adds.

That won't happen until after the party congress, so it's at least three months away, says Lam, as is the eagerly hoped for increase in foreign stock-ownership limits.

Foreigners can hold up to 49% of listed stocks and 30% of unlisted ones at present. It is expected that – quite possibly next year – the limit on foreign ownership of unlisted companies will rise to 49%. (At a project foreign-direct-ownership (FDI) level, there is no ownership limit.)

As further reasons for optimism, Lam and Hong Kong-based Yip-Geicke cite a September report from the Economist Intelligence Unit, which surveyed around 1,000 senior/CEO-level executives at international companies. The respondents ranked Vietnam second in terms of investment attractiveness – behind only China, and ahead of the likes of Brazil and India.

Moreover, Chinese investment interest in Vietnam is growing, say Lam and Yip-Geicke, noting that several Greater China companies are looking to move some of their operations to Vietnam, mainly because of rising costs in China. Two of the most prominent are a Taiwanese laptop producer called Compal, which recently opened a $500 million factory in northern Vietnam, and Foxconn, which will set up a plant next door to Compal.

VinaCapital itself is in talks over potential joint ventures with mainland Chinese companies, not just as an expert adviser but as a potential capital investor in Vietnamese projects, says Lam. “We think it's realistic that we'll have Chinese anchor investors in the next couple of years in Vietnamese private-equity/FDI deals.”

Both Chinese state-owned enterprises and entrepreneurs are interested, says Yip-Geicke. “Entrepreneurs have visited Vietnam with me and said 'oh, this will cost me one apartment in Hong Kong',” she adds, noting that $15 million to $20 million is the kind of investment amount they're looking at.

Other advantages for the Chinese include that they don't need visas to work in or visit Vietnam and they understand the country's economic and political structure very well, says Yip-Geicke. Moreover, a highway is being built to connect Vietnam and southern China, literally cementing the link between them.

Lam says: “Chinese investors are looking to invest outside China, and a natural place for that capital to come in the coming few years is Vietnam, whereas in the past few years Western countries have been investing there.”

He adds that manufacturers are looking to diversify their risk by establishing a factory in Vietnam as well as in China, as a 'China plus one' policy, quite apart from the lower labour costs in Vietnam.

Still, Vietnam may in many ways be more politically and religiously stable than some of its neighbours, such as India or Thailand, but it isn't entirely free of problems. Political tensions exist, some of which are surfacing ahead of the party congress, and the country's communist roots are making themselves felt in the form of crackdowns on activist bloggers.

Nevertheless, VinaCapital remains bullish on Vietnam – and one of its neighbours. The firm opened an office in Cambodia in September and has made its first investment there, a $75 million project in the agricultural sector, in the form of a factory that produces sugar, ethanol and power. “We've been looking at Cambodia for five years and now think it's the right time to get in,” says Lam.

The asset manager also plans to launch two new closed-end funds, probably next year. One will be a real estate vehicle, focused on the residential and retail property markets -- sectors that Lam is optimistic about because of the growing wealth of Vietnamese people and the three-year-old and growing mortgage market, among other things.

The other fund is a private-equity vehicle, which will continue the focus of VinaCapital's other PE fund – in sectors driven by the domestic economy, such as food and beverages, consumer goods and financials.

Both the new products will follow a more traditional limited partner/general partner (LP-GP) sort of structure than the firm's other funds. “We are testing the market for these at the moment, letting LPs get a feel for the level of interest,” says Lam.

VinaCapital is looking to raise around $250 million for each of the new funds.