Italy requires selectivity and prudence

18 June 2014

“The new monetary policy measures promise to lead us into unexplored territory. While we certainly consider the ECB’s plans to take a new approach important, we need not assume that equities – whose current prices, among other things, only partially reflect the Italian economic scenario – will benefit from the overall macroeconomic context”. After taking time to reflect, this is how Massimo Trabattoni, Kairos manager, responded to the June 5 announcement by ECB Governor Mario Draghi that the ECB plans to try unconventional monetary policy measures in order to jumpstart the economy. For example, the new measures will not necessarily boost loan volumes to businesses but, in a zero interest rate world, they might compress banks’ margins.

However, in the wake of Draghi’s announcement, markets further reduced Italy risk, bringing it back down to normal levels. “We can reasonably expect additional rallies in the Italian market of around 10%,” clarified Trabattoni, “but not for all stocks and not for all sectors”.

This means that prudence and selectivity are key. “We are coming out of years of low liquidity, whereas today there are not always valid buying opportunities to correspond with available capital”.

In terms of the asset management company’s investment strategies, Trabattoni notes: “In the past we have been good at avoiding stocks with more imagination than substance, and we are still devoting considerable focus to individual stories. For instance, we very carefully consider the visibility of earnings. In the insurance sector, we are confident about third party motor liability. On the other hand, we continue to have reservations with respect to life insurance. Furthermore, we have not increased positions in small caps, in order to keep investments liquid”.