Kiplinger.com, October 25th, 2007
It's been hard to go wrong investing in emerging markets in recent years.
Chris
Alderson, lead manager
of T. Rowe Price Emerging Markets Stock (symbol PRMSX), a Kiplinger 25 member, has made the most of this bull run.
His fund returned a sizzling 62% in the year through October 24, six points better than the MSCI Emerging Markets Index -- the most common benchmark for funds that invest in developing countries
Korea
,
Taiwan
,
Russia
and
Brazil
. Over the past five years, he's returned an annualized 40%, an average of four percentage points per year ahead of the benchmark.
So now he's turning to relatively virgin markets with
Alderson
.T. Rowe Price Africa & Middle East (TRAMX), which launched in September and gained 10% in its first month. "This represents the last frontier," says
You don't want to put your life savings in such a narrow and essentially untried geographic sector, but there are quite a few intriguing aspects to this new fund.
Stock exchanges in Africa and the Middle East, only recently opened to foreign investors, are under-researched and under-discovered (
Alderson
says that on average only one analyst covers a stock). That creates stock inefficiencies and fine opportunities for shrewd investors. The correlation with the
U.S.
stock market is a remarkably low 10% at a time when most international markets have been moving closely in sync with the
U.S.
Gulf States such as the
United Arab Emirates
,
Qatar
and
Oman
are drowning in new oil and gas wealth from petroleum selling for more than
Alderson
says asset prices, including stocks, are destined to rise.$80 a barrel. Oil is a state-owned industry, but
That's because most of these countries peg their currencies to the dollar but run higher inflation rates than the
U.S.
does. That creates the negative real interest rates (inflation higher than stated interest rates), and that's conducive to asset inflation.
Examples of
Alderson
's holdings are Bank Muscat, which has a 42% share of financial services in
Oman
, and Orascom Construction Industries of
Egypt
, which is the largest contractor in the Middle East. (Africa & Middle East fund does not invest in Israeli stocks, which are instead held in T. Rowe Price Emerging Europe and Mediterranean, also managed by
Alderson
.)
Strong commodity prices, from oil in
Nigeria
to gold, platinum and diamonds in South Africa, are also driving African economies. As a continent,
Alderson
says, Africa has grown by a respectable 6% annually over the past five years.
Africa & Middle East requires a $2,500 initial minimum investment. Anticipated annual expenses of 1.75% are on the high side but are not surprising given the exotic fare in which the fund invests. The fund does not levy a sales charge, but there's a 2% redemption fee on shares held 90 days or less.
