Brad Aham, manager of the $745 million SSgA Emerging Markets Fund, said he's increasing his investments in Mexico on optimism about record oil prices, and is avoiding China, where central bankers are poised to raise interest rates.

"Firm oil prices help Mexico's economy, while the Chinese market could be sluggish for a while," said Aham, 32, in a telephone interview from his office at State Street Global Advisors in Boston.

The SSgA fund ranks fourth among U.S. mutual funds that invest in the emerging markets, rising at an average annual rate of 2.9 percent in the past 10 years. It outperformed the average 1 percent advance of competing funds tracked by Bloomberg and trailed offerings such as Van Eck Emerging Markets, managed by David Semple, which climbed 5.8 percent a year during the past decade.

Aham has "a fairly conservative style, which makes the fund less volatile than some of its peers," said Bill Rocco, a mutual fund analyst at Morningstar Inc. in Chicago. "It's one of the funds people should consider."

The SSgA fund lifted its stake in Mexico to 9 percent of assets this year from 7 percent, attracted by President Vicente Fox's pledge to use proceeds from state-owned oil monopoly Petroleos Mexicanos to balance the country's budget, Aham said. Mexico's economy expanded at an annualized rate of 3.9 percent in the second quarter, the fastest pace in four years.

Aham's holdings in Mexico include America Movil SA, Latin America's largest mobile-telephone company, whose shares gained 46 percent this year, and broadcaster Grupo Televisa SA, whose stock climbed 37 percent. Mexico's Bolsa index is at a record, as rising oil prices, improving exports and a weaker peso lure investors.

Aham has direct investments in oil companies, including Russia's OAO Lukoil and Petroleo Brasileiro, the fund's No. 3 holding after Samsung Electronics Co. and Anglo American Plc.

"It's hard to see a big decline in oil prices because you don't see a big increase in supply," Aham said.

Mexico gets about one-third of its $151 billion in revenue from Petroleos Mexicanos, known as Pemex. Revenue from oil will help the country trim its budget deficit to 0.1 percent of gross domestic product next year from 0.3 percent, Fox said on Sept. 1. He plans to balance the budget in 2006 when his term expires.

Investing in Mexico is risky because the country depends so much on the United States, said Alfredo Rotemberg, who helps oversee $200 million of international stocks at OFI Institutional Asset Management in Beachwood, Ohio. About 85 percent of Mexico's exports are marked for the United States, where interest rates are rising for the first time in four years.

"If you think the U.S. is going to the valley, the first place the world is going to sell is Mexico," Rotemberg said.

Aham tracks price-to-earnings ratios and shifts in analysts' ratings to pick stocks. In addition to oil prices, he monitors fund flows and interest-rate trends to uncover countries that offer the best investment opportunities.

An analysis of fund flows made Aham and his team less optimistic about prospects for China, as companies including Bank of China Ltd. and China Network Communications Group Corp. plan initial public offerings. Share sales and higher borrowing costs will draw funds away from existing stocks, Aham said.

China's central bank may increase its benchmark interest rate this year for the first time since 1995 to cool an investment boom, according to eight of 11 economists surveyed by Bloomberg.

Aham has been buying shares of Eastern European companies, including KGHM Polska Miedz SA, a Polish mining company. As of August, investments in Poland, Hungary and the Czech Republic made up 4.4 percent of the fund's holdings, up from 3.4 percent in 2003.

The returns of State Street's fund were hurt this year by South Korea, where a rally stalled in April as U.S. interest rates and crude oil prices rose. South Korea imports almost all of its oil. About 20.5 percent of the fund was invested in the country at the end of August.

Aham, who has degrees from Brandeis University and Boston University, leads a team of eight fund managers and analysts that oversees $3 billion for clients. He joined State Street in 1993 and became the head of the Emerging Markets Fund five years ago.