6:46 AM
admin
PAGE 2 OF 5
Beyond BRIC
Forbes: Now in terms of emerging markets, we touched on frontier, developing, developed. You think this acronym called BRIC is useless?
Riedel: It is. Well, I wouldn’t say useless. It was very good in order to crystallize people’s thoughts around emerging markets. But it’s an unfortunate collection of countries. If you think about it – Brazil, Russia, India, China – you’ve got two major commodity exporters and two major commodity importers.
The economy in Brazil is so fundamentally different than the economy in India, it’s almost useless to lump them together in any way. I’d prefer that people be interested in emerging markets and pay attention to emerging markets, but recognize that they’re all very different. When you could have Korea and Chile in the same grouping with Indonesia and Poland, you really have to understand the subtleties and differences in government policy and corporate governance and other issues in all those different markets.
Forbes: Now, you like to start first by looking at an economy and then stock by stock. What are the things you look for first in an economy that makes it attractive to you, other than acronyms?
Riedel: Sure. Well, you certainly want to start with an economy that is going through enough change where business models can provide outsized growth. If you’re looking for moderate growth, you should be investing somewhere else. You want to be really looking somewhere where you can get –
Forbes: You can hit home runs?
Riedel: You can hit home runs. You’re taking a lot of risk. You want to be able to find something that can triple or go up by 10 times over a certain amount of time. When you take the model of cellular phones to a fast growing environment like China you can get that hyper growth. When you take the idea of triple play services to Brazil – blending internet, phone and television – you can get this outsized growth. So what we like to look for is economies that have attractive demographics.
Forbes: By that you mean?
Riedel: Well, a large enough population to make a difference where if external capital enters the population there’s enough of them that it can get recycled around a dynamic, domestic economy and create more value.
Forbes: So does that mean 30 million? 50 million? 10 million?
Riedel: We love to see things in the high double digits. 50, 70, 100 million.
Forbes: And a diverse economy. You mean not the Gulf states in the Middle East?
Riedel: Exactly. Not just a one trick pony. And of course one of the countries we have to talk about a lot is Russia. In many ways, that’s been a one trick pony of hydrocarbons, oil and gas. That’s where all their investment has been. Something like 82% of the Moscow market cap is oil and gas. So if you’re investing in Russia you’re essentially buying an oil and gas economy. Is that really what you want?
Also, with regard to Russia, you’ve got a declining population. It’s the only country that we cover where the life expectancy is falling. Its population is declining. It’s aging very inappropriately and not giving you the kind of dynamic growth you can get in an Indonesia or a Brazil where you have a large enough population to really make a difference.
China’s Bad Demographics
Forbes: Now just a thing on China, even though huge – 1.3 billion – the demographics in one sense are not so good.
Riedel: That’s right. It’s the fastest aging economy in the world. Because of the one child policy, which is still in effect but dominated through the end of the last century, you’ve got this incredible, what demographers call a dumbbell, a barbell. You’ve got not very many working people, a lot of people retiring and a little boomlet of younger people that are dependent on them. They’re all on the backs of this one working population.
Now the Chinese government realizes this and they often say, “We have to get rich before we get old.” They know they need to move up the value chain of manufacturing. They know they need to add more value in manufacturing and be less reliant on what we call the toys and trinkets trade, of massive factories putting together plastic flowers or Christmas lights. That kind of manufacturing has to leave China. It has to go to Bangladesh and Vietnam and other places where the demographics are much more appropriate.
Forbes: Now once you find a dynamic, diverse, non-demographically challenged economy, what are the kinds of companies was you focus on? You make it quite clear natural resources – hey, you can get them anywhere.
Riedel: That’s right. I’m a big believer, if you want to buy oil, buy it in Canada. If you want to buy coal, buy it in Australia or something where you’re not taking the kind of currency volatility risk or political risk that you might be taking in an Indonesia, let alone Kazakhstan or Mongolia. So you’re buying the same sort of underlying thing, but you might as well buy it somewhere where you can focus just on that particular risk and understand your risk-to-reward better than being in a volatile environment.
What we like are stories that relate to the domestic focus of that particular country. I always say it’s companies where the drivers of earnings are within the borders of that country. So retail, consumer, financial services, telecom, technology, transportation. Things that are really focused on –
Forbes: So-called white goods.
Riedel: Certainly white goods are a big part of the puzzle. As people’s lives change, they’re buying freezers and air conditioners. Funny story in Argentina: There was such a boom in the sale of washing machines and freezers and air conditioners that the minute it got warm last winter – because of course they’re on the reverse – Buenos Aires went dark, because they hadn’t kept up the electricity generation to keep up with the amount of appliances they were selling. So we like to find countries that are really playing to that demographic change and that strength and that solid foundation of emerging markets, which is the population.
source: forbes.com
please give me comments thanks
Posted in: 
0 comments:
Post a Comment