Market Vectors Africa (NYSE: AFK, $37.18) invests in the stocks of the Dow Jones Africa Titans 50 Index. These are all stocks of companies either based in Africa or that derive more than 50% of their revenues from Africa. Stocks from Nigeria, South Africa, Egypt and Morocco take the top weighting in the fund, making up close to three quarters of the portfolio.

Catalysts: Some of the markets AFK invests in, such as South Africa, are considered emerging markets rather than frontier. Nonetheless, AFK offers the most concentrated exposure of any fund to the frontier markets of Africa. And all of the markets in the fund certainly share the frontier characteristics of high economic growth and the potential for large returns.

Africa remains one of the world's poorest regions. According to Van Eck, the manager of AFK, the entire continent has 15% of the world's population but only accounts for 2% of global GDP. Nonetheless, the region is seeing major economic improvement. On average, sub-Saharan African grew at a near +7% pace in 2007, and growth has remained above +6% in each of the past three years.

Just as with the Middle East, some of this improvement is due to exposure to energy and mineral commodity markets. Africa is among the world's top producers of gold, platinum, uranium and diamonds. In addition, some countries such as Nigeria and Angola are becoming important and fast-growing suppliers of crude oil. And money from natural resource exports is stimulating other sectors of the African economy, just as it is in the Middle East.

There are other reasons for optimism, too. Corruption and social instability have been a problem in many African nations and remain a major issue for some countries in the region. However, many nations are making progress in this area. Botswana is a classic example.

This tiny nation of 1.8 million is a rich source of diamonds -- the government-owned diamond firm partners with foreign companies in developing resources. Those resource monies have, in turn, been spent on badly needed infrastructure and development projects. In addition, the government in Botswana has taken steps toward free-market reform, including lowering barriers to trade and a responsible fiscal policy.

Finally, foreign investment into Africa is booming. Taking into account direct investment by companies, investment funds and loans, private monies flowing into Africa topped $50 billion last year -- up from just over $10 billion in 2000.

Valuation and Outlook: AFK listed earlier this summer and thus has a limited trading history. However, the Dow Jones Africa Titans 50 Index offers exposure to the largest companies in some of the most promising African markets. The average P/E ratio of the stocks in the fund stands at just under 15, but the average 2008 growth rate projected for AFK's top five holdings is more than +20%; that valuation looks justified by the growth prospects.

Moreover, just as with PMNA, AFK looks like a decent diversification tool for U.S.-based investors. The fund's correlation with the S&P 500 is under 0.25.

Action to Take --> With the exception of South Africa, none of the countries where AFK invests have stocks trading as ADRs in the U.S. Furthermore, buying stocks off the African exchanges would require finding a local broker as no U.S. brokers handle trades there. Thus, AFK is one of the only ways for U.S.-based individual investors to play the African growth story. The fund looks like a "Buy" under $50.
 

-- Paul Tracy
Editor
StreetAuthority Market Advisor

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