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Turkey’s Place
We like, once again, those countries with large enough domestic populations, a dynamic and diverse domestic economy. Turkey, one of our favorite markets right now. Turkey finds itself between Iraq and a hard place with Europe on one side and Iraq on the other
, but they’re doing very well in their mercantalist tradition of being a trader and working with corporate groups throughout Europe as an alternative to building in Europe.Forbes: Why are they doing better now than say 10 years ago?
Riedel: There have been less and less of the political upsets which used to keep people away from Turkey. The secular government there is dedicated to maintaining itself as secular and not being influenced by religion. There have been times in the last 10 years – certainly 10 years ago – when that was frequently called into question by coups and trends and developments. And that that’s less and less now, so I think that’s a positive for Turkish investment.
Forbes: Do they have their inflation under control? It used to be like Latin America. You’d always get big rounds of inflation.
Riedel: Yeah, they’re seeing the beginnings of something now which is something we need to keep a very, very close eye on. They’ve been fueling a consumer credit boom and that’s been good for a lot of parts of the economy. Services and tech and mobile providers and things like that. But it does raise the risk of some inflation.
Picks In China
Forbes: What about other countries? You talked about China. Do you find companies there, despite the dumbbell population?
Riedel: There are some very good, well-run companies in China. And it’s obviously a huge and growing market. We’re not believers in a hard landing for China. We believe they can slow down without having a meltdown because they have so many financial reserves. They have such a strong fiscal situation.
Their tax collections in the first three quarters of this year were 32% above where they were in the same three quarters last year. So on 10% GDP growth they’re getting 30% tax collection growth. They’re doing some things very, very well. I think they have simply too much dry powder and too many options of levers – lowering interest rates, lowering reserve requirements and things, bailing out the banks as they have shown a willingness to do – to really create a crisis of a shutdown. You can find very good companies in Hong Kong, for example, that are good, well-run companies with good corporate governance that we would be proud to recommend as a way to play China.
Forbes: Still China Mobile?
Riedel: We do like China Mobile. Obviously the largest mobile operator in the world.
Forbes: Now is it true it has more cash than Apple?
Riedel: They do have $51 billion of cash. And I think that is more than Apple. They have done very well with their massive network which generates a tremendous amount of cash flow. They’ve been able to keep the competition at bay somewhat, so the cost of acquiring subscribers has come down and that cash just gets put in the bank. 4% dividend yield, trades below 10 times and $50 billion worth of cash on the balance sheet sounds pretty good to me.
Forbes: You’re convinced the cash is real, right?
Riedel: I’m convinced that cash is real. I am. I am. We’ve watched it develop. It’s there.
Investing In Indonesia
Forbes: What about other equities? Turkey. China. What other countries do you like? India?
Riedel: Let’s talk about Indonesia for a minute, because this is a market that used to be very exotic. It was a very difficult place for people to imagine investing in. And over the last 10 years you’ve seen Indonesia come from the brink of disaster during the ASEAN financial crisis at the end of the 1990s to having a very good, well-run stable of corporate families and groups that have done a very good job overseeing the largest Muslim democracy in the world, transitioning to a fully functional economy.
Now that’s what’s exciting about emerging markets. Finding those opportunities where you have a very troubled situation that, through a series of good decisions and some good luck, ends up being a fully functional economy. Today Indonesia ,with its 200 million population, has about 30% of its economy supported by exports of palm oil and thermal coal, both of which go to China and India. They have a seemingly insatiable appetite for both.
And a very dynamic domestic economy where you can buy companies that are in the agri-business space or in infrastructure building, in automobiles, in all kinds of spaces in Indonesia. There aren’t very many ADR ways to play Indonesia. For people looking for ways to play that, they’re kind of limited to the telecom incumbent PT Telcom. But that’s a great company and a good proxy for good growth in Indonesia.
Forbes: What about other equities elsewhere? Give one in Turkey.
Riedel: Okay. In Turkey, we like the retail side of Turkey. There’s a company there called Migros, which is locally listed. They had a high growth discount store chain that they sold off earlier this year, and that caused a lot of concern for people who thought, “Oh no. Now the growth pattern is going to be so much lower.”
We would argue that that’s been baked into the stock now. The stock’s at about 15 Turkish Lira. We think it could be 25 or 30 in a year when people digest the fact that slower growth is still okay and the company is well run and well positioned to capitalize on the Turkish consumer.
source: forbes.com
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