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Funds Get a Boost from Africa, Mideast

NEW YORK (TheStreet) -- One of the hottest performers this year is Nile Pan Africa Fund (NAFAX), which has returned 26.7% and outpaced the S&P 500 by 14 percentage points, according to Morningstar. Part of the reason for the strong showing is that many countries in Africa and the Middle East are booming.

Boosted by high oil prices, petroleum producers are enjoying some of the best results. Last year Saudia Arabia's economy grew 6.8%. In addition, consumer companies are achieving record sales as millions of people leave impoverished villages and join the urban middle class. In 2011, Sub-Saharan Africa grew 4.9%, and the World Banks says that the region should grow 5.3% this year.

Funds with sizable stakes in the fastest-growing countries include Harding Loevner Frontier Emerging Markets (HLMOX), T. Rowe Price Africa & Middle East (TRAMX), and Guggenheim Frontier Markets (FRN). All the funds are young and volatile, so they are only appropriate for aggressive investors. But it is well worth monitoring the portfolios because markets in Africa and the Middle East could grow steadily for years to come.

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The recent strong showing of African stocks represents a big change from last year. Markets throughout the region plummeted early in 2011 as investors feared that the protests of the Arab Spring would spread and disrupt businesses. Stocks suffered again when the European crisis intensified in the summer, and investors lost their appetite for risky shares in the emerging markets. Lately the fears have dissipated as investors worry less about instability in Europe and the Middle East.

Pradipta Chakrabortty, portfolio manager of Harding Loevner Frontier Emerging Markets, says that the outlook is particularly promising for Gulf oil producers. Seeking to prevent social unrest from spreading, governments have embarked on massive spending programs in countries such as Qatar and Saudi Arabia. The regimes are investing hundreds of billions of dollars on new airports, roads and educational institutions. Governments have raised salaries and increased social welfare programs.

"People have more disposable income, and they are spending on consumer products," says Chakrabortty.

One of his favorite holdings is Jarir Marketing, a Saudi retailer that sells books and electronic products. In a country with limited entertainment options, families swarm to massive Jarir stores that feature hot-selling cellphones and tablet computers.

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