Vietnam stock exchange one of Asia's top performers

There was a time when the idea of a stock market named for Ho Chi Minh would have seemed absurd. No longer.

A generation after Vietnam achieved the late communist leader's dream of independence, the Ho Chi Minh Stock Exchange's main index is one of Asia's top performers. The past year, it's up 47%.

Driving the market is a sense that after an ill-fated reform bid in the 1980s, Vietnam now is firmly established on a market-oriented path. The economy is growing at better than an 8% annual clip, foreign investment is pouring in, and a continuing shift away from central planning is transforming lumbering state-owned entities into nimble public companies. Like its northern neighbor, China, Vietnam seems intent on making up for time lost.

"The long-term prospects of Vietnam are tremendous. … There's a young, dynamic population here that's eager to improve their lives," says Kevin Snowball, director of PXP Vietnam Asset Management, which manages about $550 million for institutional investors.

Developing well-oiled capital markets is essential for Vietnamese capitalism to take root. The past two years have seen the market grow from 41 listed firms valued at less than $1 billion to 206 stocks with a market capitalization of around $22 billion. That's impressive progress, but it leaves Ho's market worth no more than a single company such as Archer Daniels Midland.

Vietnam remains an embryonic investing climate. There's no easy way for retail investors outside the country to invest here. Foreign institutions hold about one-quarter of available shares, and individual Vietnamese own the bulk of what remains. Financial information on listed companies, or those preparing to list, can be more difficult to obtain than in more developed markets, says Nguyen Viet Ha, general director of Mekong Securities in Hanoi.

"Local securities houses like us just started doing company reports this year. … But it's still a big gap between what you see here and how you do it in Singapore or Malaysia," he says.

The two-year market run-up also has left some stocks extremely pricey. Vietnam Dairy Products, or Vinamilk, trades at a price-to-earnings ratio of about 38. In the USA, the Standard & Poor's 500 index trades at about 18 times earnings.

But deciding when "pricey' becomes "too pricey" isn't easy in such a market. The Vietnam index trades around 23 times next year's earnings. Using a different measure (market cap as a percentage of gross domestic product) both India and China look more expensive, the World Bank said earlier this month.

"I don't think it's a bubble environment," says Nguyen. "The growth is quite sustainable."