The new T. Rowe Price Africa & Middle East fund gives investors access to stock exchanges that only recently opened to foreign investors. By Andrew Tanzer, Senior Associate Editor October 25, 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 T. Rowe Price Africa & Middle East (TRAMX), 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. Advertisement 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.) Advertisement 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.