How to invest where the oil is

By Tim Middleton

Of that $100 we're spending for a barrel of oil these days, $10 goes to Saudi Arabia and $20-plus goes to its neighbors in Africa and the Middle East, according to the International Energy Agency.

You can get some of that money back through a new mutual fund, T. Rowe Price Africa & Middle East (TRAMX).

Launched in September, the fund was ahead a stunning 29% by the end of 2007. And that's on a portfolio with 63% of its assets in the financial sector, which is withering in oil-consuming nations but prospering in the places where all that oil money is being sent.

With the developed world slouching toward retrenchment if not recession, equity investments are looking more and more dubious. And with other emerging markets becoming almost tame -- Mexican and Russian bonds now have investment-grade ratings -- so-called frontier markets could be the next wave.

"Hot money flowing out of the more visible and popular emerging markets may soon go searching for the next great growth story in foreign markets," says Leuthold Group analyst Eric Bjorgen in a report to the research company's clients.

And T. Rowe Price's outstanding team of growth-oriented research analysts are proving themselves adept at spotting the lushest opportunities.

A comparable exchange-traded index fund, SPDR S&P Emerging Middle East & Africa (GAF, news, msgs), was ahead only 7.1% from the time of the T. Rowe Price launch to the end of the year.

Joseph Rohm, a London analyst for T. Rowe Price International who is attached to the new fund, says these securities markets are particularly attractive based on valuations.

"These markets had a sharp correction in October of 2005, and (stocks) are trading 50% and 60% below their highs," he says, on single-digit price-earnings ratios.

An array of expertise

T. Rowe Price has possibly the best array of specialized international funds in the marketplace, from its pioneering International Discovery (PRIDX, news, msgs), a small-company fund ahead 16.6% last year, to New Asia (PRASX, news, msgs), up a dazzling 66.4%.

Rohm says the Africa-Mideast fund is following three themes: an exceptionally strong regional economy, heavy expenditures in infrastructure and an emergence of broad consumer demand.

"There is low penetration with regard to the use of mobile phones, for example, and that is changing," he says. "We are seeing a big rise in GDP (gross domestic product) per capita and a lot more discretionary spending."

Continued: Not oil, the oil economies

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