Yunusov, who manages the Ansher Regional Equity Fund, has 19% of his portfolio in bank stocks, the fund’s largest sector exposure, Reuters reported.

The region’s banking industry is under-developed and undervalued, particularly in Uzbekistan, Yunusov said, where many banks trade on a price-to-book ratio -- market value divided by total assets minus intangible assets and liabilities -- of between 0.7 and 1.2.

Bank assets in Uzbekistan grew 27% between January and September this year. Uzbekistan Central Bank said Monday, 27 October, that the assets of banks increased by 29.6% to 11.798 trillion soums.

The fund, which has assets under management of US$21 million, invests in a range of sectors in Central Asia including oil and gas, metals, consumer, food processing, and telecommunications.

It also takes short positions in internationally-listed securities of companies with operations in the region and was up 13% year to date at the end of September.

The region, which has 5 to 7% of the world’s natural resources, is becoming increasingly economically diverse, Yunusov said.

The second largest sector exposure of the fund is in telecoms, which Yunusov said, is also under-developed in the region.

Pascal Buschor, business development director of Ansher, said mobile telephone penetration in Kyrgyzstan and Tajikistan is about 2% but over the past three years penetration in Uzbekistan has grown to 40% from a similar level.

The fund invests in companies on price-to-earnings ratios as low as 1 and will often play an active role in helping the company to grow. "We invest in the tip of the iceberg and seek to unlock the hidden potential of companies," Yunusov said.

In recent weeks, the fund cut its exposure to Kazakhstan, the region’s most developed market and largest economy, to 3% from 15%. Kazakhstan is refinancing its foreign debt and with its heavy exposure to mining and energy is less diverse economically than others in the region, the report said.

Buschor said the market is reaching attractive valuations following a 60% decline this year and expects to rebuild exposure to Kazakhstan during the first half of 2009.