There’s something symbolic about this: FTSE and Citigroup have launched a new index covering the Vietnamese stock market, targeted specifically at foreign investors.

The index, which is designed to be the basis for investment products such as structured products and exchange-traded funds (ETFs), makes adjustments to company weightings to account for the foreign ownership restrictions imposed by the Vietnamese government.

The FTSE Vietnam Accessible Index only includes 11 components, out of over 100 listings on the Vietnamese market. Nonetheless, focusing on the largest names, it covers 80% of the eligible market capitalization, before adjustments are made for investability. It currently has heavy sector weightings in Food Producers (27.61%), Fixed Line Telecommunications (22.43%) and Electricity (21.44%). The smallest sectors are Chemicals (1.21%), Construction & Materials (4.43%) and Industrial Transportation (5.10%).

The index is free float weighted and screened for liquidity. Citigroup helped FTSE determine the investability of the individual components.

Jerry Moskowitz, president and manager of FTSE Americas, says that demand for the index originated in Hong Kong, and that Citigroup is in the process of creating investable products based on the index for the Hong Kong market. In the United States, he says, FTSE is in negotiations regarding the creation of an ETF based on the index, and has seen a good deal of interest.

“The reason for this interest in Vietnam is that it is a very quickly growing market, rapidly converting from communism to capitalism,” he adds.

Developing markets have long been seen as a way to diversify one’s holdings. Some believe that as the Vietnamese economy continues to undergo major changes, it could follow in the paths of India and China, which have both seen spectacular growth in recent years. Those two countries also have restrictions on foreign investment, and yet they are still popular with investors. Barclays Global Investors already offers an exchange-traded note focused on India, and other providers tap into the market through foreign-listed shares.

The Vietnamese stock market soared 145% last year, which has driven some of the attention. Although, according to a February Wall Street Journal article, some fear a bubble, Vietnam has a lot going for it over the long term. The company entered the World Trade Organization earlier this year, and has a number of factors going for it, according to the Journal: an 8% annual economic growth; a large, youthful population; increased foreign investment; and increased privatization. Hedge funds apparently discovered the country last year and fought to find ways to invest in the restricted market, contributing to the market’s impressive performance in 2006.

Vietnam has also seen a surge of domestic investment, the Journal article notes. At the same time that it launched the FTSE Vietnam Accessible Index, FTSE also introduced the FTSE All-Share Index covering the top 90% of the country’s stock market capitalization, with 27 components, and the FTSE Vietnam Index, which covers the top 80% of the Vietnamese market’s total capitalization with 14 components. Unlike the FTSE Vietnam Accessible Index, the latter indexes do not reflect restrictions on foreign investment. Three of the top 10 components, which are the same for both of the domestic indexes, are excluded from the FTSE Vietnam Accessible Index.

The FTSE Vietnam Accessible Index is the first index covering the Vietnamese stock market that is designed for foreign investors, says Charly Madan, CCO for Citi in Vietnam.

“It will assist in the ongoing development of Vietnam’s capital markets,” he adds.