Monthly Letter March 2014

The situation in Crimea stole the headlines in March. We commented brief- ly on the subject in our February le er and we will leave it at that.

The situa on in the European periphery has been moving in the right direc- on since Draghi spoke in London in the summer of 2012. Funding costs have come down and we have also seen an improvement in economic sen- ment, export data, unit labour cost etc. We’ve touched on these subjects from me to me in our monthly le ers. Our view has not changed: it is happening and the improvements are star ng to be very visible. The catch is that what is visible to us is also visible to the rest of the market. It takes a li le imagina on and curiosity to try and peek around the corner.Optically valua ons are not that cheap anymore. We do, however, believe the situ- a on will con nue to improve. Spanish banks probably have another 50% upside in the next 2 years if we are correct. This is good, but no real head- turner in terms of expected return given that there are risks associated with those predictions.

More interes ngly: we are seeing real change in behavior in some of the companies that we follow. One example is Vimpelcom, the Russian mobile operator listed in New York. They own the Italian mobile operator Wind. They bought the business in 2011 and, like your typical Italian operator, it is heavily indebted.

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