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David Riedel is the president of Riedel Research Group, a firm dedicated to boots on the ground research in international markets. Recently, he sat down with Steve Forbes
to talk about emerging markets, myths regarding investing abroad and areas of opportunity. Video and a transcript of their conversation follows.Steve Forbes: David, good to have you with us.
David Riedel: Thank you.
Forbes: Emerging markets. In your mind that covers a whole multitude of sins, so to speak.
Riedel: It does.
Forbes: How do you define emerging markets, and how do you chop them up? Frontier markets and other things?
Riedel: Right. Well, the common approach is frontier markets, then emerging markets, then developed. And where it gets a little fuzzy is on the edges: Is South Korea a developed market or should it be lumped in with emerging? There’s an ongoing debate about that. Where is Israel in terms of their development, being in which bucket?
And then there’s poor Argentina, which recently got demoted from the emerging bucket to the frontier bucket, after years of misbehavior. There’s a fairly traditional view that there are a certain 28 markets in Asia, ex-Japan, Latin America and what we call emerging Europe that make up the emerging markets. And the more exotic markets are the frontier.
Forbes: Exotic being places like Sierra Leone and Sri Lanka?
Riedel: We even don’t have to get that exotic. A lot of people are looking at Egypt.
Sri Lanka has been a very good market in recent years after the civil war ended. That market really took off. Egypt has had its moments in recent years. Pakistan has its moments of turbulence and opportunity. But Vietnam is one that’s in the frontier markets but definitely on people’s radar screens as a potential investment area.
How Riedel Got His Start
Forbes: And how did you get interested in these markets?
Riedel: It was sort of a long history. My parents are Australian and I was born and raised in San Diego. So we had an early introduction to the concept of the Pacific Rim and the idea that countries around the Pacific had a certain connectivity that was interesting.
There was a program at University of California San Diego that was beginning at the time that was to study the Pacific Rim and the interaction of those economies and societies. I went to Berkeley and studied Chinese and lived and worked in China and Taiwan.
Forbes: This was when?
Riedel: This is 1987 and 1988, when I was in China and Taiwan – working on my Chinese and then traveling around China. I’ll tell you, China in 1987/1988 was very different than it is today. But then I spent about 10 years in Bangkok, Thailand working for Salomon Brothers and Salomon Smith Barney learning about the investment world. That was my introduction to the emerging markets.
Forbes: You’ve talked about the decline in research. When did that happen and what brought it about? And what got you to set up your own shop?
Riedel: First of all with regard to research, overall it’s always been bundled along with brokerage, investment banking and advisory services by the large bulge bracket banks in Europe or the U.S. I think there’s an inherent conflict of interest in that. They’re encouraging you to take action when perhaps it’s not necessary, and they have muddled motives when they’re trying to take someone public and have you invest in the stock, as opposed to something else which might fit you better.
Internationally there’s been sort of a boom-and-bust cycle of investment research. People tried to take the U.S. model and put it in the international markets. And then during times of turmoil they’ll pull back to just a few locations. Trying to cover, for example, all of Asia from Hong Kong or Singapore. Trying to cover all of Latin America from Miami, in some cases. Or trying to cover all of Europe from London.
What I had observed by being in Thailand is if you’re on the ground in these markets with smart people who know what questions to ask and are listening for the answers, you can get good incremental information that helps you make better investment decisions by being on the ground. And that’s been the focus of Riedel Research since 2003.
Forbes: How do you get paid?
Riedel: Well, fund managers subscribe to the service. So fund managers, recognizing the value of the service, subscribe to the service. They also have the right to request custom research.
Forbes: Do you call it bespoke?
Riedel: It sometimes is called bespoke. They get to determine what the subject matter is. If they want to know about waste water treatment opportunities in Asia or a survey we just completed last week in China that asked about attitudes towards certain internet- and computer-related names and services, then they get the chance to get that work done by an independent, impartial person who will tell them what we really learn.
source: forbes.com
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