UPDATE 1-FTSE-Citigroup launches Vietnam equity index

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HONG KONG May 22 (Reuters) - Citigroup (C.N) and index provider FTSE Group have jointly developed and launched a Vietnam equity index, tapping burgeoning interest in the country's fast-growing economy and stock market.

"We have had enormous investor demand for a Vietnam benchmark that is liquid and reflects the restrictions on foreign investment. The index that we have created with FTSE is the first to meet both of the objectives," said Justin Kennedy, managing director of Citigroup Global Markets Asia.

The index, called FTSE Vietnam Accessible Index, targets foreign institutional investors and includes shares such as dairy product maker Vinamilk VNM.HM, the Corporation for Financing and Promoting Technology FPT.HM, Pha Lai Thermal Power Co. PPC.HM and Vinh Son-Song Hinh Hydropower VSH.HM.

"We've created an 11-stock index constituting large stocks in the Ho Chi Minh index, which are investible by foreigners," Krishna Guha, Citi's equity derivative strategist, told Reuters.

"The index represents approximately 61 percent of the performance of the broader market. The Ho Chi Minh index is skewed towards larger stocks with the top 11 stocks accounting for approximately 75 percent of the index."

The index will be rebalanced each month to take into account frequent initial public offerings, Guha said, adding that Citi was planning an exchange traded fund based on the index.

Vietnam's main stock market index .VNI, with 107 listings, has risen about 47 percent so far this year after a 144.5 percent surge last year. That compares with gains of about 12 percent for MSCI's measure of Asia Pacific stocks excluding Japan .MSCIAPJ this year.

Foreign investors had poured between $3 billion and $4 billion into Vietnam's stock market this year through March, the finance ministry estimated, and investment could rise to $5.5 billion by year-end, the central bank has forecast.

To be sure, the market, which has been trading for less than seven years, is tiny compared with other emerging markets in the region.

The Ho Chi Minh Stock Exchange, which was renamed by the government this month from the Ho Chi Minh City Securities Trading Center, has a market capitalisation of about US$15 billion.

This compared with US$153 billion for Indonesia's Jakarta Stock Exchange and US$79 billion for the Philippine Stock Exchange, April data from the World Federation of Exchanges showed.