Forbes: How do you define emerging markets? You've got a unique definition of that.
Booth: I define it by risk perception. All countries are risky and the emerging markets are the ones where it's priced in.
And the opposite of course is a developed country where the domestic investor base doesn't even think of their own sovereign risk. So I don't think it's a surprise that Iceland is a developed country. It wasn't that people couldn't have worked out that there was a problem. A 13-year-old probably could have typed in IMF.ORG and worked it out in 2006. Likewise Greece, which today has a probably larger risk of default, sovereign default, in the next one year than any major emerging market. So it's really about risk perception. And that's the particular way I define it.
Forbes: Now political risk. How do you define political risk and why do you find that higher in so-called developed countries than your bailiwick of emerging markets?
Booth: Well political risk is everywhere, but I think it's on the increase in the developed world, whereas I think in the emerging world. For example, last year you had Indonesia and India, two examples of elections where the domestic the electorate returned the existing government's, prior reform governments because they understood that this was an external shock. They don't have credit crunch. And they didn't blame their politicians, but they also understand the importance of continuity. Whereas in certainly my country and a lot of the developed world I think you've got a massive increase in political risk. You've had several pieces of retroactive legislation. You've got measures really which are denying the scale of the credit crunch. Nobody should talk about the credit crunch in the past tense, you see. All the academic research on this is pretty clear. It will take many years to delever.
And political risk is everywhere. Political risk is when there is a risk that a road project as a private equity investor, say, the government or a local government will change the terms of the deal before it's completed. And that in some sense is often as high in a developed country as it is in the emerging world, frankly.
