As the Vietnam stock market continues to surge, waves of hedge funds are starting to pour money into the market, according to The Wall Street Journal.   The Vietnam sock market index soared 145% last year, and in less than two months this year, the index is up another 44%.   The numbers are still small, even by emerging-market standards, but hedge funds are still interested in the region. “Vietnam finally started attracting hedge fund investors last year,” said Perry Jung at New York-based Auerbach Grayson Co. “They saw the market was up 120 % at one point and wanted to get in.”   However, the stock market is showing signs of a bubble, and there are growing concerns that it could pop. Share price valuations are nearing those of the Internet stocks in the 1990s.   Client notes from brokerage firms are warning that the Vietnamese government plans to soon impose capital controls “aimed at curtailing potential capital flight in the event of a market crash,” wrote J.P. Morgan.   According to a Credit Suisse report, a policy study was submitted to Vietnam’s prime minister offering various ways to cool the stock market. Capital controls under consideration include a rule that foreign money must remain in Vietnam for at least one year and imposing new taxes on foreign exchange transactions, the report stated.    The increased investor interest has misrepresented the market somewhat. Popular stocks are trading at more than 50 times their trailing 12-month earnings. Setting up a local stock trading account in Vietnam takes two months, and most hedge funds don’t want to wait.   Actually, many have been buying one of the dozen Vietnam-orientated closed-end funds, driving up some premiums well above 50%. Some of the new Vietnam funds have been offered by units of Deutsche Asset Management and J.P. Morgan, but none are available to U.S. retail investors.   There are some companies that are interested in “emerging China,” but are waiting to enter the market. “Vietnam’s problem is too little supply and too much demand,” said Arjun Divecha, at GMO Emerging Markets Fund. When the speculation ends, prices could fall hard. “At that point, we would be interested in entering the market,” Divecha said.   The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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