A new investment management company based in Ho Chi Minh City is wrapping up raising money for what will be the first international fund dedicated to investing in Vietnam's stock market, with the aim of becoming the dominant blue-chip investor in a growing emerging market.

PXP Vietnam Asset Management was recently founded by Kevin Snowball, formerly a trader of proprietary emerging market funds for ABN Amro, Baring Securities and Bear Stearns; and Jonathon Waugh, a Vietnamese speaker who left JPMorgan Chase last year when it shut the Vietnam office inherited from Jardine Fleming.

Snowball has been in Hong Kong this week meeting prospective investors. The Cayman-domiciled, Dublin-listed, five-year closed-end PXP Vietnam Fund will close to new subscriptions on June 30. It is charging a 2% management fee and no performance fee. The managers hope to raise $10-30 million, and may re-open the fund later for European pension funds that have expressed interest.

The fund is a return to a type common in Asia in the 1980s and early 1990s when Southeast Asian 'tigers' were the rage. "Vietnam is Thailand 20 years ago," says Snowball. "Closed-end funds used to be the only way to give investors access to markets that weren't researched, but the sector's been squashed because now you can find out anything you want about companies in Thailand or Malaysia. No one knows anything about Vietnam but they can see a strong economic story."

Today the stock market in Ho Chi Minh City, which opened in July 2000, has a market capitalization of $140 and 21 stocks, of which only five are bigger than $5 million. Not exciting stuff now, but Vietnam seems to be jumpstarting the economic reforms that have long been expected. The government's plan is to open a second mart in Hanoi and by 2005 have a total of 200 listed companies and a market cap of $2 billion; and by 2010 have 1,200 stocks valued at $10 billion.

"We're there to get the big ones," Snowball says. PXP (which stands for Phan Xi Pang, the country's tallest mountain) is limited to buying only stocks valued at $5 million or more, so it can only invest in five existing stocks (actually just four as the foreign quota is already full on one). As the market grows and new, larger companies are listed, PXP will raise its minimum size requirements. "The reason we're there is not for these four companies, but for the future," he says.

The early 1990s saw six private equity funds raise $400 million to enter the market but reforms stalled and were frozen during the Asian financial crisis, and now only one of those funds, Vietnam Enterprises Investments managed by Dragon Capital, still invests in the country.

A generational leadership change last year and the signing of a bilateral trade agreement with the United States, however, is paving the way for change. With US companies to be allowed to enter the market over the next three years, the government is now committed to boosting the competitiveness of domestic enterprises. Rapid growth in foreign direct investment, a new willingness to list larger companies - and perhaps one day the big state-owned enterprises - and the need for a bigger market to accommodate the growth of the insurance sector are all spurring reform now.

The risk for ventures such as PXP is mainly political: Vietnam is a Communist country where reforms can backtrack. Other risks include the currency, the limited liquidity in the market, the uncertainty whether investments in companies slated for listing pan out and an inadequate legal and accounting system.