UPDATE 2-Morgan Stanley forming Vietnam securities JV

(Updates with quotes from Vietnam official, paragraphs 4-5)

By Daisy Ku

HONG KONG, March 19 (Reuters) - Wall Street's Morgan Stanley (MS.N) said on Monday it is forming a securities joint venture with Vietnam's State Capital Investment Corp. (SCIC), tapping a booming market that is expected to see a wave of privatisations.

The Hanoi-based joint venture, to be named SCIC Morgan Stanley Securities, will provide investment banking products such as M&A advisory and capital markets underwriting, equity and debt sales and trading, as well as research.

The venture will apply for domestic licences and expects to begin operations in the fourth quarter.

"We are happy that we could find a good partner like Morgan Stanley," Le Song Lai, executive director of State Capital Investment Corporation (SCIC) told Reuters in an interview on the sidelines of an investment conference in Hanoi on Monday.

"We are working together to obtain the licenses quite soon, hopefully by the end of the year," Lai said.

The communist-run country's benchmark stock index .VNI jumped 144.5 percent in 2006 and is up more than 50 percent so far this year, powered in part by an influx of foreign funds chasing economic growth of 8-plus percent and a population of 84 million with burgeoning spending power.

Global investment banks have been circling Vietnam in hopes of taking part in the country's surging capital markets activity. Last month, Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE) were chosen to advise as consultants to two Vietnamese banks on their partial privatisations this year.

Analysts expect strong growth of Vietnam's securities market over the next two years, thanks to substantial inflows of foreign direct and portfolio investment following the country's accession to the World Trade Organisation (WTO).

The number of listed companies on the Ho Chi Minh City Securities Trading Centre and Hanoi Securities Trading Centre surged to a combined 193 from 32 in 2006. The total market capitalisation of the two bourses rose 20 fold year-on-year to reach US$14 billion, or 22.7 percent of the country's GDP in 2006.

The State Securities Commission expects the stock market capitalisation to jump to 30 to 40 percent of GDP by 2010.

State-owned SCIC, a strategic investment arm of the government of Vietnam, was created in mid-2005 to take capital ownership of the country's 5,000-plus state-run enterprises, which accounted for about 70 percent of the country's tax revenues.

SCIC can raise funds through issuing bonds and fund investment certificates. It is authorised to make direct and indirect investments domestically or abroad in any form or sectors.

Morgan Stanley will appoint the joint venture's chief executive, a source familiar with the tie-up said, while SCIC will name the firm's chairman. Both companies, along with staff, will hold equity stakes in the combined firm. (Additional reporting by Grant McCool and Ho Binh Minh in Hanoi)