With only three retail mutual funds in Vietnam, fund distribution is nearly a non-existent business in that market. HSBC, which is a dominant player in fund distribution in other markets in Asia, is for now relegated to the role of an observer.

ôTwo things drive fund distribution û retail investors should be interested in investing and there should be an outlet for them to invest on a regular basis,ö says Ron Logan, head of personal financial services in Vietnam at the HSBC Ho Chi Minh City branch. ôAs you can see, there are only three public funds here and those are the only opportunities retail investors have.ö

Those three retail mutual funds, referred to as public funds in Vietnam, are closed-end portfolios that were offered to subscribers during an initial offering period. The latest retail mutual fund, the Manulife Progressive Fund launched by Manulife Vietnam Fund Management Company in July, failed to meet its target fund size, generating only VND 215 billion ($13.6 billion) or 85% of its target.

There are around 100 so-called member funds, but these are not widely available to the public and are mainly offered to private individuals or certain companies who may want to invest in these portfolios.

There are no wealth managers or financial planners in Vietnam because there is no range of products there that would require that kind of distribution that is present in larger economies in Asia. ThatÆs not a surprise considering VietnamÆs stock market itself is relatively new, having been created only in 2000.

Logan expects to see the gradual development of local-based funds before the market sees any movement towards funds that invest overseas. At present, local retail investors arenÆt allowed to invest overseas and there are no programs similar to ChinaÆs qualified domestic institutional investors (QDII) or qualified domestic retail investors (QDRI) schemes that enable them to bring money abroad.

Since investing in property is very popular in Vietnam among the emerging middle class, Logan believes that funds that invest in property stocks will likely be appealing to new investors in that market.

While Vietnam lags compared with other Asian markets in terms of the growth of its fund industry, Logan considers the strides in the local market ôspectacularö when looked at its starting point some five years ago.

ôVietnam is still very much a cash economy. You buy a car, you pay cash,ö he says. ôBut that is changing, and typical of Vietnam in the last five years, that change can happen fast.ö

Logan notes that the government has already mandated all state-owned enterprises to pay their employees their salaries through their bank accounts before the start of next year. ThatÆs expected to lead to a sharp rise in the number of bank accounts in Vietnam. The governmentÆs efforts are rooted in the need for openness, disclosure, and proper monitoring for tax purposes, he says.

Puneet Gupta, head of HSBC Securities Services in Vietnam at the HSBC Ho Chi Minh City branch, says a similar initiative is being undertaken for retail investors. He says the government is mandating all investors with brokerage accounts to open a bank account next year.

HSBC has a pending application for local incorporation in Vietnam. That would allow the bank to launch and distribute their own funds. But Logan admits thatÆs not a priority at the moment.

ôBefore going into funds, we would go through the wider range of banking products and services first,ö Logan says. ôThere are some fundamental things that we need to address like building the branch network, investment in the legal entity, appointing directors, forming our corporate structure. There are a number of business opportunities that need to be addressed before we get to the fund management side.ö