Emerging Markets: Brazil, China—and Pakistan?

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I am speaking to you from Doha in Qatar, then I'm on to Jordan, Lebanon, and Saudi Arabia and back to Dubai. We are investing in all those countries. There is money coming into our funds, and we see opportunities. Obviously with the high degree of uncertainty, you see an overreaction in Dubai [so there are buying opportunities]. Qatar has gas exports taking off, and it's going to have a lot of money to invest. They are building this incredible infrastructure and investing in technology. We are investing in Qatar Steel and Qatar National Bank. In Dubai, we are investing in Emaar Properties and DB World, the ports company.

We continue to hold on and buy in India. In Pakistan, we are probably overweight compared with everyone else. For our Asia growth funds, we have been buying Pakistan Telecom, MCB Bank, and Indus Motor, which is a Toyota (TM) assembler and distributor. In Iraq, we haven't gone in yet. We have a private equity fund looking at it as well. There is a stock exchange, by the way. And Iran has a big market. When and if things get better, that would be an obvious place to hit.

What themes are you investing around?
Commodities are a main theme. We are looking at $70 per barrel in our model. Another theme is consumers, because the per capita income of consumers in emerging markets is going up. We hold retail chain Massmart from South Africa, which is beginning to move north to other countries. In Kenya, [we hold] East African Breweries. As for telcos, we find them expensive and think the chances of growth are diminishing. It's a bit like the airline industry. You have to keep on investing and buying expensive licenses where the government takes you for a ride.

How do you expect emerging markets to perform in 2010?
You cannot expect the same kind of percentage increases, but that doesn't mean you can't have a very good return. We are not in the mode of selling massively or getting into cash, that's for sure. That's probably the consensus opinion, which is usually dangerous. But we are finding companies with good dividend yields, companies that are growing.

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong.

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