Dear Shareholders,

As is widely known, a novel coronavirus has been detected on nearly all continents on the planet, and the resulting infection – known officially as “Covid-19” – has now been declared a pandemic by the World Health Organization.

In recent weeks and days, this event has wrought concern, reaction and precaution; in some instances, it has also begat confusion, miscommunication and panic. The pandemic has also triggered numerous and severe dislocations in political relationships and financial markets. It has precipitated the fraying of global oil cartels, leading to a collapse in the price of oil, and it has caused tremendous volatility in stock and bond prices the world over. Most pressingly, large numbers of people across the globe have been infected with the virus, and fatalities continue to mount in its wake. Brave health care workers have made tremendous sacrifices to stem and abate the disease. Our prayers are with all those affected by the pandemic, and we are dearly thankful for those working to stem the virus’ spread, and for those treating the afflicted.

The health and safety of Seafarer’s team members and families is one of the firm’s chief-most priorities. Our team was aware of the outbreak of the virus from its first public announcement in January, and we reacted by deferring all travel to the Asia region indefinitely. Shortly thereafter, the firm deferred all non-domestic travel. More recently, Seafarer elected to have all staff work remotely on a voluntary basis (i.e., Seafarer’s offices remain open should there be a pressing need for a centralized meeting). Like many other businesses in Northern California, Seafarer has taken this precaution in order to reduce the risk of cross-infection, and thereby slow the virus’ progression.

Seafarer has robust business continuity policies and practices in place – tested on many prior occasions, most recently the fires and power outages that struck our region in the fall of 2019 – and thus we are confident that our personnel can conduct all necessary work securely and effectively, even if situated remotely for an extended period. Business travel for research purposes and client interaction has necessarily been curtailed, but all other operations continue to function normally.

The spread of Covid-19 has necessitated modifications to our business processes, but we are able to go about our work effectively nonetheless:

• Face-to-face meetings with representatives of companies and analysts have been curtailed in lieu of phone and video conferences. Somewhat ironically, the availability of such interactions has increased since the onset of the virus, as companies have sought to maintain open lines of communication with investors.
• While stock prices have been highly volatile – and generally falling – liquidity has not. Many emerging markets have seen trading values increase approximately 30% to 50% in recent weeks. (One notable exception is the Philippines, where the stock exchange announced a trading suspension on March 16.) Anecdotally, we have seen healthy participation by local institutions and domestic retail investors, providing liquidity amid sell-offs.
• The novel coronavirus continues to spread across the developing world, and we fear that its spread in India, South America and Africa is misunderstood and largely under-reported. Conversely, some of the emerging markets impacted earliest (China, South Korea, Taiwan, Singapore) have implemented seemingly effective responses that have stemmed the virus’ spread – for now, at least – and thus there are some signs that life is beginning to normalize.
• We have seen most central banks in the developing world act swiftly to improve liquidity conditions by lowering borrowing rates, and in some instances, through direct injections of liquidity to markets. Most central banks have room to cut further, if needed.
• Most developing countries also have sufficient fiscal strength to engage in stimulus, if required. Credit markets are strained, but functional.
• Thus far, selling activity and resulting price movements appear largely indiscriminate with respect to financial and economic fundamentals. The stock prices of companies that enjoy strong balance sheets and stable cash flows have not been spared. In some cases, Seafarer believes such indiscriminate price movements may allow the Funds to accumulate existing or new holdings at favorable prices.

Amid such volatile circumstances, shareholders understandably wish to know what the extent of the economic and financial damage might be, and when this event might subside. Unfortunately, widespread uncertainties cloud any forecast we might offer. The virus’ impact on global populations and health systems is still expanding; the economic and financial consequences appear severe, cascading, interwoven, and unpredictable in the short run. Unfortunately, we believe the financial impacts of the virus could be manifold, including reduced sales, lower profit margins (or outright losses), strains in credit markets, and in some cases, default and bankruptcy. Seafarer intends to manage such risks by staying apprised of events as they unfold, by appraising the threats that affect individual portfolio holdings, and by using our knowledge and experience to make decisions that we believe best serve long-term shareholders’ interests.

Thank you for entrusting Seafarer Capital Partners with your long-term investments in the emerging markets. As we work through these volatile times, we will endeavor to keep in contact with shareholders via our regularly scheduled communications. Should you have questions, please contact us.

We hope for your good health, and we firmly believe that this too shall pass.

Sincerely,

Seafarer Capital Partners, LLC

The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect Seafarer’s current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Seafarer does not accept any liability for losses either direct or consequential caused by the use of this information.