Austerity Measures in the Periphery

24 February 2014

Spain and Greece have paid – and are still paying – the price of their sins, and a few opportunities are beginning to take shape on the horizon, notes David Grazzini, manager of Kairos Partners’ KIS Small Cap fund. He is based in London but more often than not you’ll find him traveling the world over to check out new opportunities and verify whether choices in place are still up with the times. Visiting companies, meeting with management, holding conference calls with partners and providers and assessing projects and returns prospects are only a few of the many activities on which Grazzini bases his management of the KIS Small Cap fund, with an investment focus on small and mid-sized businesses in Europe, although he clarifies that, “as these are all securities issued by companies with capitalization of under 5 billion Euro, the fund concentrates on businesses of a specific size”.

Soon after his return from recent trips to explore opportunities that look appealing on paper, Grazzini explains, “Among Europe’s periphery countries, Spain, along with Greece, is the one that has implemented the most significant corrective measures: a 10% cut in government employees, comprehensive clean-up of banks, decrease in average salaries of 2% in 2012 and 1.6% in 2013. More time is needed, but the adjustment process is underway”.

Similar considerations apply to Greece, as the austerity measures imposed by Europe have brought it to its knees, leading to a nearly post-war climate. “To cite a few figures, consumption has practically fallen by 10% and cement sales have collapsed to 20-30% of their peak, now at 2.5 million tons compared to the peak of 11.6 million tons, while the real estate market is practically at a standstill”.

What is the appeal of two such troubled areas? Grazzini concludes, “The feeling is that these are economies that have reached their lows, which means that if we vet carefully, we are certain come across opportunities for positive developments in the medium term”.