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In 2013, the NS Capital Investment Committee had the great fortune to meet Evan Vanderveer and David Shapiro, Founders and Portfolio Managers of Vanshap Capital. Vanshap Capital is an internationally focused investment manager that specializes in small EM companies. Whenever a country’s stock market declines significantly, Evan and David are amongst the first people in searching for opportunities. Prior to the pandemic, both gentlemen were extensive travelers building trusted networks. Over the last six years, major effort has been focused on the countries of Greece, Mexico, and Georgia. So, we felt it would be very worthwhile to get their developing world perspective from these three unique environments. Below are key highlights from Todd Peters, Chair of our committee, conversations with Evan Vanderveer conducted on June 24th and July 20th of 2020
What is your current view of emerging markets in the context of the pandemic?
The pandemic has been a major test for government leaders throughout the globe, particularly in the developing world. In our opinion, it showed their true colors. For those emerging countries where the government had a strong working relationship with business, they have tended to manage the crisis much more effectively. That has become an important observation for us.
How would you describe Greece’s response to the pandemic?
Just as Greece was finally recovering after significant reforms and amid surging consumer confidence, tourism, which equates to ~20% of GDP, has all but ceased due to COVID-19. The country was arguably one of the best positioned in all Western Europe going into the crisis with a staunchly pro-business government firmly in control.
The country knew it needed to aggressively lockdown to protect the health system. And, that is what happened. The government has done a phenomenal job handling the virus due to decisive leadership actions. The program was a smartphone-based reservation/monitoring system with heavy enforcement. It worked as tourism reopened on July 1st. And, worth mentioning, the UK executed an air-bridge agreement with European countries. This is important because Greek beaches are a desired summer holiday destination. We remain optimistic about Greece post pandemic.
Let us move to Mexico, how have they done?
This is not a positive case. After initially refusing to act, President Andrés Manuel López Obrador (AMLO) began to implement a few precautionary measures like those instituted in other countries. We were hopeful he would become even more serious and take additional actions to adequately protect the population. Unfortunately, that has not occurred. As of early July, Mexico had the world’s fifth-highest number of Covid-19 deaths.
One of the key issues is AMLO’s view on business. He is anti-business. The wealthy citizens fear him and, as a result, business leaders have been less inclined to work with him. AMLO’s policy has been let the government facilities handle it, which has proven to be ineffective.
How about one more, your thoughts regarding Georgia?
Georgia has been praised by international health organizations for its handling of COVID-19. Cases were ~910 (as of June 24th) and the country took early aggressive actions to socially isolate and track points of contact of early infected individuals. Georgia is highly business friendly with bipartisan pro-Western policies, which we view as positive for the long-term future of the country. Like the Georgian economy, Georgians have withstood tremendous turmoil over many decades, and they have developed thick skin.
The restaurants opened in early June with no surge in cases. Tourism is beginning to resume with Germany, France and three other countries being given quarantine-free access. Additionally, the Georgian health organization has instituted a sophisticated digital tracking system.
Concluding thoughts?
After the relative dismal performance of emerging markets versus the U.S. over the past decade, we feel it important to point out the historic valuation and sentiment discrepancy that now exists. And, Covid-19 has further exacerbated this situation. The sentiment toward these markets is far beyond negative and we have heard every reason in the book as to why investors have no interest – the dominance of the U.S., the less educated populations, etc. We believe nearly all market participants have thrown in the towel on emerging and frontier markets and are gathered on one side of the boat.
The first quarter was undoubtedly the most dramatic since the firm’s inception and among the more remarkable in modern financial history. Of note, it was our largest buying spree over the last seven years. In the month of March, cash levels went from 18% to just 8%, far below the average of 28% since inception.