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https://vimeo.com/432105685In this video Duygu Inceoz, Head of Investor Relations at Mavi, talks about the company’s relationship with Mobius Capital Partners. Since the investment manager joined the shareholder register in October 2018, it has worked closely with Mavi’s Board, management and wider stakeholders to help unlock additional value. Notable projects include additional transparency around a related party transaction and the introduction of a stock incentive scheme for senior management.Mavi is a leading Turkish apparel retail brand with global operations. It was originally born as a denim company in 1991, but later developed a broader clothing range.www.mavicompany.com

The uncertainty and panic surrounding the Covid-19 crisis has led to rollercoaster stock markets. The extreme volatility is worrying for investors and one question I am frequently being asked is “Have we seen the bottom yet?”At this point the answer to this question is guess work. It all depends on how quickly we are able to contain the virus, how quickly a cure and a vaccine can be found and how quickly regular economic activity can be resumed.However, since I first started investing in emerging markets back in 1987 we have experienced a number of crises and bear markets including the Asian financial crisis, the subprime mortgage crisis and others. We have also witnessed and profited from the recoveries that followed. While this particular crisis is unique in the scale of the actions taken by governments around the world and their effect on economic activity, there are similarities to previous stock market crashes when one assesses the reactions of investors. Some say that this bear market is unique and we have never experienced anything like this before. But it’s important to remember that, as the late Sir John Templeton once said: “The four most expensive words in the English language are ‘this time it’s different.” Human behaviour tends to follow predictable patterns because of built-in emotions that make us human.So what can we learn from history that will enable us to make better investment decisions in times of crisis? Looking at previous bear markets can provide some indication on what we might expect in the current market environment and going forward. Therefore we took some time to study 11 stock markets (U.S, U.K., Turkey, Korea, China, Taiwan, Brazil, Japan, Thailand, India and Hong Kong ) and their bear markets since the end of the 1980s. We have not included the current bear market since it may not have ended yet.The Global PictureWe define a bear market as a decline of 20% or more over a period of at least two months. If this was followed by a 20% rise over a period of at least two months we considered a subsequent fall of 20% or more as a new bear market. Because international investors are usually more interested in U.S. Dollar returns we have chosen USD indices rather than the local currency ones.Based on these indices the average bear market decline was about 49% across all markets but the declines ranged from a low of 23% to a high of 92%. In terms of the length of time a bear market lasted (from the peak of the bull market to the lowest point in the bear phase) this was on average over a year and to be precise, approximately 15 months. But the range was from a few months to over three years. As one would expect, emerging markets proved more volatile than the developed markets with more bear markets, a higher average decline of 51% and a shorter duration of about one year.But let’s have a look at the individual markets. (Please note we are not yet counting the recent market downturn).U.S.Examining the world’s largest market, the U.S., we focused on the S&P 500 Index and found that since 1987 the market experienced only three bear markets, excluding the current one. Those three bear markets averaged a 47% decline and ranged between a low of 34% and a high of 57%. The length of time of the bear markets ranged between three months and three years and averaged 17 months.U.K.In the U.K. the market (in USD terms) was more volatile than in the U.S. Since 1987 the FTSE 100 Index (USD) experienced six bear markets with declines ranging between 65% and 23% with the average being 38%. Like the U.S. the average length of time was 17 months for the bear markets with a range of 4 months to three years.TurkeyTurning to emerging markets, we found that the Turkish market was highly volatile. This is one reason why this market has been very attractive to some investors who love volatility since it provides them with more opportunities. During the time period starting in 1988 the Turkish market experienced 10 bear markets which showed an average decline of 64% with a range of between 81% and 46%. The average length of the bear markets was 14 months but ranged between a high of three years and a low of 4 months.KoreaNext on our list was Korea, another volatile market with nine bear markets. Those bear markets averaged a decline of 49% ranging from a low of 27% to a high of 86%. The average time length of all the bear markets was 17 months and ranged between 4 months and three years.ChinaWe found that the China market as indicated by the MSCI China Index had a total of eight bear markets averaging a decline of 56% and ranging between a low of 33% to a high of 82%. The average length of time was 14 months with the longest period being more than two years and the shortest five months.The MSCI China Index was launched on Oct 31,1995. Data prior to the launch date is back-tested dataTaiwanWe would expect the Taiwan market with its economy so closely tied to China to perform similarly but that was not the case. The Taiwan market proved to be more volatile with 11 bear markets between 1988 and 2019. The average decline was lower than in China with 48% ranging between a high of 80% and a low of 23%. The length of the bear markets ranged between a few months and almost two years with the average being 11 months.BrazilThe Brazilian market experienced 11 bear markets during the period averaging 56% decline and ranging between a decline of 75% and 35%. Average time length was 12 months ranging between a few months and almost three years.IndiaIn India, the market experienced nine bear markets averaging a decline of 44% ranging between a high of 71% and a low of 24%. The average time length for the Indian markets was a little over one year.JapanIn Japan there were seven bear markets averaging a decline of 42% and ranging between a fall of 62% to 24%. The longest bear market in Japan lasted more than three years and the shortest 9 months with the average at 24 months.ThailandThe Thai market was rather volatile with ten bear markets averaging a decline of 46% and ranging between a high fall of 92% and a low of 24%. The average length of time was nine months.Hong KongThe last market we looked at was the Hong Kong stock market, which witnessed eight bear markets since 1987. The average decline was 45% with a high of 64% and a low of 21%. The average length was 13 months.What lessons can we draw from history?So what can we learn from the above? We can see that on average bear markets declined by about 50%. The developed markets declined even less on average. In terms of the length, a bear market lasted on average more than a year. Bear markets in emerging markets were on average lasting shorter than bear markets in developed markets. This is important, as I believe the critical question is not only what the bottom is but how long it will last. You will need the cash reserves to continue to gradually buy and hold for what may seem like a long time.So at what stage are we now? In reaction to the Covid-19 pandemic markets went down between 20 and 30% so much less than the average 50% we have seen above. The market swings have been wild on the upside and the downside. As I write this piece the indexes might already have moved higher or lower.This kind of volatility is not unusual. If we look at the behaviour of the indices in bear markets we see that this sort of up and down is part of the game. So unfortunately, the recent positive movement in many markets does not necessarily mean that we will see a continuous upward trend. There will always be backtracking and corrections along the way. This seems to be confirmed by the historical data from previous bear markets. However, the figures mentioned above are averages and averages are exactly that. The range can be wide. Many bear markets went down far less than 50% so it’s probably a good time to start nibbling but leave enough firepower to continue buying if the markets retreat more.The full economic cost of the shutdowns around the world cannot be accurately assessed and will, of course, be quite different from one industry to another and one company to another. We merely need to keep our eye on the long term developments and take an optimistic stance: Of the many years since 1987 when I’ve been investing in emerging markets all over the world I can say that there are two conclusions that I can confidently ascribe to: (1) all emerging markets experience bear markets, and (2) all emerging markets recover from those bear markets and experience a bull market. It’s very much like the conclusions of Arnold Toynbee, the famous historian and scholar of civilisations since ancient times. After all the years of study he said that there were two conclusions that he could ascribe to: first, all civilisations rise and, second, all civilisations fall. The wonderful thing about this phenomenon in emerging markets is that the rise and fall of the markets is relatively frequent and the bear markets tend to be shorter than the bull markets. So if you are a patient and disciplined investor you can purchase bargain stocks in the bear phases when everyone else is selling.At the rate the coronavirus is spreading globally there might be worse to come but stock markets are starting to price that in. And given the efforts now undertaken by governments, central banks and scientists to contain the crisis I am confident we will see containment followed by a recovery on the horizon but as history teaches us it might not be for another year.

Over the last few days, we have seen significant volatility across all major stock markets as we start to see the impact of the Coronavirus (Covid-19) pandemic. Businesses have been temporarily closed, investments are being held back, employees are working from home, supermarkets are being emptied by panic-buyers and the business climate has deteriorated considerably. Understandably there is a sense of panic. This week with Italy an entire democratic country has been placed under quarantine. These are unprecedented times.Furthermore, as the virus first surfaced in China, it has hit the country particularly hard. This is critical for the global economy, as China is now the world’s largest manufacturing centre and an important source of raw materials. We believe there will definitely be an impact on global growth. While it is difficult to speculate on an exact figure at this stage, we estimate it could be around half a percent. As the crisis continues to develop in Europe and North America, it could be even higher.Given this backdrop, the portfolio of the Mobius Emerging Markets Fund has naturally been affected. Two of our holdings in China will likely be the most impacted. One is a company active in the fast food industry (Yum China) and the other in the entertainment sector (IMAX China). Naturally, they have suffered from the quarantine measures taken by the Chinese government to contain the spread of the virus.The recent news flow from China is more encouraging with newly reported cases declining day by day (down to 24 new cases on 11 March) and we are expecting performance to improve again. It seems China is on the road to recovery. A survey by Made-in-China.com—one of the main platforms connecting Chinese suppliers and global buyers—found that by late February, 80% of manufacturing firms had resumed operations.Overall, the Mobius Emerging Markets Fund has been less affected by the recent volatility than others. The fund outperformed the MSCI Emerging Market Index by more than 7% in the last three months and more than 3% in the last month. If you look at the MSCI EM Mid Cap Index the outperformance is even more pronounced with 10.7% and 5.9% respectively. We are looking to utilise our current cash levels to increase exposure to certain holdings that are now trading at heavily discounted valuations. We are in regular contact with all company management and continue to monitor the portfolio closely.As fundamental investors we take a long term view. Our investment horizon is 5+ years. Despite the mounting number of people infected and the worrying death toll, we believe the impact will diminish over time and the virus will eventually be contained. A tremendous amount of resources is currently being devoted to prevent the spread of the virus and at developing a vaccine.Generally, the case of the Coronavirus is a reminder of how volatile markets can turn over night. As investors we have to be prepared. Portfolios that are globally diversified address this kind of risk and are in a much better position when such events occur.

Having invested in emerging and frontier markets for over 20 years, I have discovered there is a widely held view that corporate governance standards there are generally lower than those in the developed world. Many understandably assume that this is part of the reason why these markets are classified as “emerging”. Often these concerns discourage market participants from investing in the asset class at all. While I agree that standards can be dramatically improved (across both developing and developed markets), I believe that this deficiency presents an attractive investment opportunity.In a blog at the end of last year, my colleague Greg Konieczny challenged investors to see themselves not as passive share “holders”, but as active share “owners”. At Mobius Capital Partners, we act as flag bearers for this cause. We are not discouraged when we encounter a company with a strong underlying business, but poor corporate governance. Instead, we try to understand whether the company’s board and management are interested in listening to our concerns and implementing a programme of reform. For this to be a success, it is paramount that all stakeholders display a willingness to address the deficiencies and not just pay lip service to the problem. As a result, engaging with management and understanding what truly drives them forms an integral part of our 4-6 week due diligence process before we invest in a stock.We often find ourselves pushing at an open door, and this is particularly true of companies that have a strong controlling family stake. In these instances, our proposed changes are often championed internally by the second or third generation. These individuals have returned from Western business schools with an in-depth understanding of the procedures and transparency expected of a publicly listed company. They are hungry to make these improvements and act as the catalyst for change.One of our holdings, a Turkish denim manufacturer, has already successfully introduced a long-term incentive program for executives based on share price performance and operating profit, aligning the interests of the founding family with those of the senior management and the minority shareholders. Our prior experience enabled us to propose a suitable structure.At this stage you may be asking, why is strong corporate governance so important? One early benefit is that it demonstrates to the wider market the company’s intention to be perceived as a reputable. Often it reflects the start of an evolution from a domestic orientated firm to a more international player. More importantly, strong corporate governance creates a solid foundation on which wider operational as well as social and environmental improvements can be built. This can help us unlock further value within a business and drive a re-rating.On the company level we believe an engagement approach based on partnership will play an increasingly important role in the future of active management. We do not wish to dictate to companies how to run their business, but instead help in creating the optimal conditions within which a company can realise its full potential and ensure a long term and sustainable outlook. This is reflected in our focus on ensuring companies have the appropriate board composition, introduce management incentive schemes and adopt best in class investor relations which includes best in class financial, social and environmental reporting.There are signs that national governance is also improving on the macro level in some emerging markets. For example, China’s Securities Regulatory Commission has introduced voluntary environmental and social reporting guidelines for listed companies, which will be mandatory by the end of 2020. India’s Securities and Exchange Board has introduced new mandatory “business responsibility” reports for the country’s top 500 listed companies. They are expected, in time, to be applied to all Indian businesses. And after years of scandals South Korea’s Chaebols are coming under growing national, and international pressure to reform their antiquated corporate governance arrangements.Corporate governance reform seems to be on the agenda in both emerging and “frontier” markets, and for good reason. The evidence reveals a strong link between corporate governance reform and improvements in financial performance. By integrating corporate governance, and environmental and social factors in our investment process, we can significantly reduce the risk profiles of our portfolios. This translates into higher risk-adjusted returns, and associated benefits for companies, all their stakeholders, and emerging markets as a whole.