Mark Mobius: a postcard from Slovenia

In an exclusive letter written for Citywire, veteran emerging markets investor Mark Mobius of Franklin Templeton reports on a recent trip to Slovenia and the investment opportunities he found.

I once asked a group what the difference between Slovenia and Slovakia is. Many were stumped. The former, famous for subterranean caves and the latter, for its impressive mountain ranges, couldn’t be more vastly different, despite the similar sounding names. I’m reminded of my Austrian friends who are frustrated at their country, being confused with Australia, and blurting out: “There are no kangaroos in Austria!”

Slovenia’s location is quite advantageous bordering Austria, Italy, Croatia, Hungary and the Adriatic Sea on the southwest. The majority of the population is made up of ethnic Slovenians but there are minorities of Hungarians, Italians, Croats, Serbs, Bosnians Macedonians, Montenegrins, Albanians, and others.

The South Slavic language, Slovene, is the official language but German and Italian is widely spoken along the Austrian and Italian borders. Many Slovenes are multilingual. According to one survey, the majority of Slovenes, in addition to Slovene, can speak other languages such as Italian, Croatian, English, and German.

Slovenia has a population of about two million and is relatively wealthy with a GDP per capita of over US$27,000. Travelling around the country, the great roads, infrastructure and housing indicates a wealthy nation often compared to Switzerland not only for the high living standards, but also the beautiful mountains and plateaus which cover most of the northern part of the country. Over 60% of Slovenians between the ages 10 and 74 are internet users, above Europe's average.

Slovenia has more than its share of sports heroes. For example, Jure Robic has won the most number of Race Across America races. Martin Strel, known as the “Big River man” swam all the longest rivers on all the continents while Davorin “Davo” Karnicar was the first man to ski down Mount Everest as well as all the highest peaks on all seven continents.

A former republic under Yugoslavia, Slovenia was declared independent in 1991. In 2004, the country joined the North Atlantic Treaty Organization (NATO) and the European Union (EU) and in 2007, joined the Euro currency union. Just like other countries in Europe, Slovenia’s economy was recently hit by the subprime crisis. The country’s GDP contracted by 8% in 2009 after a rise of 4% in 2008 and almost 7% in 2007.

However, things are looking up this year and we are expecting a modest recovery of a 1% increase. Inflation has been on the downtrend falling from a 2000 high of 9% to a little more than 1% this year. Trade equals about 120% of GDP (exports and imports combined) with about two-thirds of Slovenia's trade with EU members. During the last decade, privatizations have been carried out in the banking, telecommunications, and public utility sectors.

Slovenia’s Stock Exchange is relatively small with 78 listed companies, a market capitalization of US$11 billion and daily turnover of about US$2 million. Like other East European markets, it suffered in recent years. In January 2008, the MSCI Slovenia US$ index level was above 1000. By early 2009, it crashed down the 350 level. Following a short recovery to about 550 in October 2009, it is now back to below 400.

Slovenia is becoming more integrated with the rest of Europe with one of the key signs being the 2008 acquisition of the Slovenia Stock Exchange by the Vienna Stock Exchange.

Slovenia has a number of excellent companies that have expanded beyond their shores. During our recent trip, we visited a leading home-shopping electronic retailer in Central and Eastern Europe. The firm began operations in Slovenia in 1992 and then expanded across the continent to Croatia, Macedonia, Bulgaria, Serbia, Montenegro, Slovakia, Poland, Hungary, Bosnia, Czech Republic, Russia, Kosovo, Lithuania, Latvia, Estonia, Albania, Romania, Ukraine and Turkey. Marketing and promotion is achieved through 300 TV channels including its own five home shopping TV channels and over 100 internet websites. Since 2005, revenues have been growing at a compound annual rate of 32%.