Tapping Truly Emerging Markets

By Andrew Tanzer

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 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 T. Rowe Price Africa & Middle East, which launched in September and gained 10% in its first month. "This represents the last frontier," says Alderson.

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 $80 a barrel. Oil is a state-owned industry, but Alderson says asset prices, including stocks, are destined to rise.

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.

Comments

Post a Comment

Popular posts from this blog

I'm an accountant, I hate my job, but seriously, I wouldn’t know what else to do

I was born to be a lot of things, but being an accountant isn't one of them. In my heart of hearts I have always known this, but for some stupid subconscious reason, I have always ignored it. Why? Well...um...err...I didn’t know what else to do. How many people faced with the same predicament of deciding on a profession upon graduating used “not really knowing what to do” as their guiding compass? Blink. Ten years have passed and you’re left wondering, how did I get here? In this cubicle? Doing something I cannot stand (and I’m not even honestly good at), with people I quite frankly don’t really care about? For me that was accounting, a profession that conjures numerous clichés, such as boring, bean counting, personality not needed, number crunching etc etc. These have now evolved and have been replaced by repetition, reconciliations, long hours, fudging figures, high turnover, Enron and even more reconciliations. R-E-S-P-E-C-T But please don’t get me wrong, I have the utmost respe...
Read more

Three money managers who lived through the 1987 stock-market crash warn of danger today

Image
By  Philip van Doorn Published: Oct 31, 2017 1:49 p.m. ET SHARE   ‘I would take some money off now because ... there are clear signs of deranged valuations,’ says Gabelli fund manager Lawrence Haverty Getty Images A trader on the New York Stock Exchange on Oct. 19, 1987 — Black Monday. When the stock market crashed on Oct. 19, 1987, investors panicked. It was an unfamiliar event — the previous decline of a similar magnitude occurred 58 years earlier, in 1929. Now, 30 years after Black Monday in 1987, there are professional investors still at work who lived through that fateful day. In interviews, three of them talked about their experiences, offered insights into warning signs and gave advice on how to handle major downturns. They are: •  Lewis Altfest , president of Altfest Personal Wealth Management, which manages about $1.3 billion for private clients. Altfest founded the firm in 1983 after working as a general partner and director of research at Lord, A...
Read more

Have We Reached a Top?

By James Kostohryz It's never been my position that the flow of fundamental news would turn from positive to negative overnight and in a total fashion. The world simply doesn't work that way. When I terminated my core long position a couple of weeks ago for reasons explained in�Ten Reasons the Countertrend Rally May Be Over,�I outlined a series of factors I believe may manifest in the later half of 2009 and the first half of 2010. Indeed, most of these factors will be more back-end loaded, as negative factors tend to build on one another and gain momentum in time through the medium of psychology and social mood. It's my view that the flow of economically relevant events�-- and perceptions of these events --are in the early stages of a transition. In this case, a transition means the flow of relatively good news will tend to wane somewhat while there's an uptick in relatively bad news. This is what one would expect at a top. However, it's to be expected that during t...
Read more