Alessandro Fugnoli’s market view

7 April 2015

Kairos strategist Alessandro Fugnoli gave the opening remarks at Citywire, an event for fund selectors held at the Four Seasons Hotel in Milan on March 31, 2015. Fugnoli shared his view of the market with participants, including what he believes will be the implications for investors and their portfolios.

He began by describing two different perspectives on what has happened since 2009. One school of thought is that this is an economic cycle like any other and we are now in a recovery stage, especially in the United States, while the second maintains that we are dealing with a credit cycle, which is to say that we are in a deleveraging stage with insufficient QE.

“There is some truth to each of these perspectives, and we should see them as overlapping and be pragmatic rather than ideological: in a nutshell, we expect inflation to resume with caution and we need to understand that the economic cycle has a life of its own and is merely running its course,” he explained. “The United States is an example of this: inflation (without considering oil) has gone from 1.5% a year ago to 1.9% now and the elimination of the output gap, which is to say the possible start of the bear market, is slated for the end of 2015, while it should begin in Europe at the end of 2017”.

In short, we will not see huge surge in America: for years growth has fluctuated at around 2% and even if there were an upwards surge, it would be eroded by the dollar.

In Europe, Germany has confirmed in both words and deeds that it attaches importance to the Euro, and even public opinion is that QE is a valid solution to the debt problem. “However, the Euro is not a definitive structure. It will be constantly plagued by doubts and remain weak, but not because of the cyclical fragility of the European economy, which instead stands to enjoy a reasonable boom as consumption recovers. Europeans will be the ones who decide to release capital flows,” maintained Fugnoli.

 “European bonds have pretty much topped out, but we won’t see a bear market until the end of 2017. On the other hand, there is still room on stock markets for recovery,” noted Fugnoli with respect to Europe.

Before concluding, the strategist briefly discussed other investment areas. He explained that in Japan, earnings are still growing, QE will continue, the exchange rate is sufficiently low, there is no need for write-downs and valuations are not as high as those in Europe and the US.  

“China is the farthest along in the economic cycle. It has reached a delicate stage of maturity: the start of this year was terrible. Structural factors are in plain view and this is why the system is being reformed. The Chinese stock market rose too high and is expensive, but government is pushing for a revaluation of prices,” he continued.

On emerging markets, where attractive rates and prices can generally be found, since India and Indonesia grew too much and Turkey finds itself in an uncertain political situation, Fugnoli believes the doors to Mexico and Peru are still open. 

And what about oil?  “Saudi Arabia and Iran are on the verge of war, but we will not see an increase in the next quarter: the price of oil will stay at current levels.” And with these words, Fugnoli ended his speech.