Nick Price at Fidelity International tells Lindsay Vincent why a broad swathe of the globe, stretching from Russia to South Africa, has become an exciting new investment territory.

In the world of moneymaking, bliss is an elusive state. Still, Nick Price, an investment manager who roams the globe for Fidelity Investments, gives every impression of knowing how to find it.

This much can be determined from the no-nonsense criteria he uses to select his investments. This is the checklist he uses for buying: companies must be undervalued, unloved, cheap and have low price/earnings multiples; they must have a strong balance sheet and a low enterprise-to-sales value; and they must be trading in the market at a discount to value.

Income is not a priority. But apart from that, this set of standards pretty much describes the dream companies Warren Buffett probably had in mind when he said: ‘Investment is easy. Just buy the right companies, at the right price, and do nothing.’

Today, Price reckons to be in ‘a rich hunting ground’ for these companies. Their locations may surprise, since they are primarily in Africa and Russia, regions that make many international investors twitchy. This attitude, for now at least, suits Price just fine, as he believes a self-imposed stand-off by the competition provides opportunities for his fund – opportunities to buy equities at cheaper prices than might otherwise be the case.

Price, a South African and a private investor since his school days, manages the Fidelity Emerging Europe Middle East and Africa fund. The vehicle, his own inspiration, was seeded in 2005 by Fidelity and money from Saudi Arabia, after he had persuaded his masters of the fund’s merits. The initial $125 million seed input has blossomed into a $1.2 billion Luxembourg-registered fund.

For UK investors the first opportunity to invest in the shadow UK-registered fund, now worth £60 million, arrived in February 2008.

Since then, original investors in this latecomer have seen a rise in the share price of some 27 per cent. In 2010 to the end of April, the gain was 15 per cent. In comparison, Fidelity Global Emerging Markets fund, a $4 billion leviathan with a wider brief that Price took on in July last year, rose by a puny 1.7 per cent in the four months to the end of April.

For his creation, bookmarked in the so-called EMEA category, the benchmark dictates a heavy load in favour of Russia and Africa and this explains why the composition of his fund – 40 per cent South Africa, and 30 per cent Russia – looks like a north/south fund with a few add-ons in between: Turkey, Egypt, Kenya, Nigeria and, soon, possibly Ghana.

The Maghreb? Price is not interested. He is equally dismissive about Arab countries of the Persian Gulf. ‘I see nothing attractive at the moment. Most of what you can buy there is property and property related, and, by definition, that means banks.’

Price says he was a long-time sceptic about Dubai, whose woes, as the recent request for a further debt extension by its biggest borrower illustrates, are increasing.

For Price, Africa is clearly a comfort zone. ‘The opportunities in this enormous, under-tapped market are huge,’ he says. What gives Africa the edge for investors, he adds, is a lack of competition, even in providing simple things such as beer, cigarettes, mobile tele- phones and retailing – sectors where his fund is invested. He says the intensity of competition, when compared with the West, is laughable.

‘The classic example can be found in retailing. In Lagos, a city of 20 million people, there is just one shopping centre,’ he says. The key retailer in this air-conditioned mecca is ShopRite, a South African company with dominant food and non-food retailing interests throughout sub-Saharan Africa.

Is Tesco, for example – a company with global aspirations – missing out here then? ‘There are not many [companies] who will move in,’ he says. ‘Most people are scared of Africa and that creates huge opportunities to make money.’

Price cites brewing as another market where competition is feeble. In oil-rich Nigeria, where Shell is heading for the exit, he owns Guinness Nigeria and Nigerian Breweries. The latter is an affiliate of Heineken and the former of Diageo. This means proper accounting standards are in place. However, according to Price, this does not make these companies exceptional. ‘Accounting standards in Africa are not a problem,’ he says, and he is similarly comfortable with governance issues.

Notwithstanding this, operating in some African countries is not easy, he says. ‘This tough environment means is it not easy to get things done, but that creates the opportunities for better profits.’

What about political risks? ‘You are always going to have them,’ he says. ‘But look at annual GDP growth in Africa. In the past seven to eight years, it has been around 5 per cent. Compare that with Europe. It is two to three times that level. There has been more stability in the past five to 10 years, and peaceful transitions of power, if you ignore Robert Mugabe and Zimbabwe.’

The cornerstone stocks in his African portfolio are based in South Africa, where he also owns banks and, inevitably, mining stocks. There is no wholesale banking market in the country, a situation that led to the sector emerging unscathed from the global blow-out. Standard Bank is a prominent holding, while another favoured stock is Naspers, a satellite television broadcaster attracting 80,000 new subscribers a year outside South Africa.

The average revenue per client for Naspers, $60 (£41) a month, is higher than some satellite deals in the UK, a sum that would surely bring a glint to the eye of Rupert Murdoch. ‘People in Africa lack entertainment, and people with money are prepared to pay for the service,’ Price says.

His mobile telephony investment, MTN, has more than 100 million subscribers. The impact of newly arrived telephony on GDP is not understood, he says. However, on his reckoning, fixed lines added 2.5 per cent to European growth in the decade that followed World War II. Price drools at what this could mean in Nigeria, where telephony reaches just 4 per cent of a population of 160 million – slightly larger than Russia’s.

Price, whose determination to enter fund management was rewarded with a job offer from Fidelity, followed the firm’s traditional path for employees who shape up, from analysis to managing money. At Fidelity, analysts have a far greater influence on portfolio selection than tends to be the case elsewhere in the fund management industry.

Price’s sidekick, James Cook, says that for stockpickers, there are many parallels between Russia and corporate Africa, such as the paucity of competition.

One quarter of Price’s fund is invested in financials, and in Russia the dominant holding is Sberbank. ‘It is Russia’s largest bank and, with its 52 per cent market share, it dominates the deposit market,’ says Cook. It pays very little for these deposits and the bank, formerly Russia’s state bank, has astonishing scope to increase its loan book.

In Russia, vehicle and mortgage loans, for instance, are infinitesimal and the penetration of credit elsewhere in the economy is also very low, says Cook. This, to a greater or lesser extent, is also true of eastern Europe, but, right now, the whole of emerging Europe, with its economic travails, does not tempt Price one bit.

Mechel, a major Russian steel producer, offers exposure to economic growth in China and India as well as Russia. Moreover, the company has one of the largest coking coal fields in Russia, at Elga in the north-east of the country, which has easy access to the insatiable market for coking coal in China.

The obligatory presence in mobile telephony is held through VimpelCom, one of three principal operators in Russia. Penetration into the telephony market by outsiders is difficult, says Cook, and this helps explain the company’s strong margin growth.

In this period of exceptional volatility in foreign exchange markets, Price’s funds do not hedge their bets. Instead, Price uses what Cook calls ‘natural hedges’. For example, when the rand appreciated sharply last year, the fund reduced its mining exposure in favour of consumer stocks, where the higher rand made imports into South Africa cheaper.

He favours gold over platinum, through London-listed companies such as Aquarius, Lonmin and Eurasian Natural Resources.

Price is prepared to ‘go 20 per cent’ outside the benchmark and, following Israel’s newly found status as a developed country, he intends to increase exposure there. ‘Global emerging market funds have been selling Israel,’ says Cook, and this has created opportunities.

Price’s fund has one company listed in Bermuda, a brass-plate island better know for its captive insurance and shipping entities. Behind the brass plate is the aforementioned VimpelCom. That places it, in theory, beyond the political reach of the Kremlin.

It’s a salutary reminder of the political realities facing countries in transition.