These are the cheap frontier markets that experts are buying now

Oliver Bell, who runs the T. Rowe Price Frontier Markets Equity Fund, reveals what he's been buying recently, explains the recent sell-off, and tells us which investors should be buying his fund.

Where do you see the best opportunities right now and how is the fund positioned? 

We like some of the Gulf countries, so Saudi Arabia and Kuwait which are dollar linked, and obviously oil economies.  We like Nigeria where we have an overweight position.  In Sri Lanka we have a very big overweight position because it's a very, very cheap market with some very interesting dynamics. Vietnam is a much-loved country by many people at the moment.  We also like it, and particularly the banks and the consumer space there.

Apart from MSCI inclusion, why are you overweight Saudi Arabia?

So Saudi Arabia is clearly an oil economy going through radical transform at the moment as Mohammed bin Salman makes some fairly radical reforms and is opening up Saudi Arabia.  There's a very young generation there that are demanding these reforms.

It's a country whose currency is pegged to the US dollar.  That means that when the US raises interest rates, so does Saudi Arabia, and that leads into widening margins in the banking system, which is a very attractive space at the moment.

With markets down year-to-date after a two-year rally, do you see this as normal consolidation? 

The correction in the frontier markets can almost entirely be accounted for by the correction in the Argentinian stockmarket which is an unusual set of circumstances from a country that was very big in the index.  As a consequence, the asset class is down 15% year to date but, however, almost all of that, as I say, 13% can be accounted for by the correction in Argentina.

The asset class more broadly is cheap, it's on about 10 times earnings, and so, yes, this is a very interesting time to be adding to the asset class.

What have you been buying and selling recently?

After this big correction in Argentina, we've been topping up some of our positions in Argentina, given that the market has corrected 60%, it looks like the authority's response has been completely orthodox.  They've got the backing of the IMF, and the currency is now seemingly stabilised, so we've been cautiously adding into some very select, high quality positions there.

In the Middle East we've been topping up our positions in Saudi Arabia, obviously benefitting from the rising oil price at the moment, and in Kuwait as well where we now have a healthy 17% position in the fund.

What type of investor should buy your fund?

This is a fund for a long term and patient investor.  It's going to be, I'm fairly convinced the trajectory is up, you're going to get a very good return but there is a perceived higher risk, and you are going to get headline risk with this fund.  

So, there are going to be countries that have problems along the way over the next 5, 10 years, and it's my job to navigate those.  But you're going to open a paper and you're going to see that Country X is having a problem, but you will see that also that's just one tiny part of the portfolio and actually, longer term, the performance should be very strong.

This interview was recorded on 3 October 2018 and can be viewed in full here.