We have said it several times: Italy is going through a “special” time.
The first half of the year’s reporting was in fact positive overall. Italian manufacturing figures have shown very sustained growth rates and the recovery is showing signs of a solidity that exceeds the estimates. The markets had partially anticipated this, in light of the fact that the quarterly reporting season falls between July and August and is divided into several phases.
However, it is always difficult to tell the extent to which these expectations are already built into the prices. At the moment, the figures are robust and stimulated by the manufacturing component, which is also the backbone of our country’s economy. Furthermore, management of the vaccine plan places us among the most virtuous countries in Europe. “Therefore, the preconditions are also in place for growth to continue over the coming quarters, but the next two or three months will provide us with crucial information on the ability of the Italian government and institutions to launch the necessary reforms to benefit from the European NRRP funds”, explains Trabattoni.
The real issue facing Italy’s equity market is what the second post-Covid-19 phase will look like, with the completion of the reforms that the Draghi government is implementing. If they transform Italy into a country in which it is easier to do and set up business, we will probably still have some space in terms of price revaluations. This scenario is also due to the fact that, over the last twenty years, modernisation and growth have remained practically frozen. The underlying trend remains positive, but the markets tend to emphasise it with accelerated phases of growth followed by pauses to metabolise the excess.
To manage these phases, Kairos prioritises a flexible approach which makes it possible to avoid always being passively invested in a fixed rate of shares in the portfolio. On the contrary, it is an attempt to draw benefit over time, so as to take the tactical opportunities in addition to the fruits of strategic investments in the medium-long term.
In addition to the sectors most closely linked to the NRRP, namely the energy transition and digitalisation, Kairos extends the scope of its action to the entirety of the Italian manufacturing sector made up of mid- and small-caps. This is also to take the opportunities that are already being created by the inverse process of the delocalisation of global production chains. Trabattoni argues: “In recent decades, we have witnessed a constant migration of production chains to the East, whereas now we are seeing an increasing number of cases in which these are returning to Italy, a country which occupies second place in terms of manufacturing in Europe and has a production capacity with high added value. And that is not all: Italian industry also capitalises on investments brought about by the initiatives of previous governments (industry 4.0) which incentivised modernisation and digitalisation in the production process.
In conclusion, the greatest risk factors for equities are currently not so linked to the so-called “country risk”, but rather to critical aspects highlighted by the international context. Our country still has a long way to recover in terms of both the economy and, in turn, equity revaluations. In fact, we are observing historic changes such as the end of the delocalisation of production, which is bringing Italian manufacturing back to centre stage. The real issue is understanding whether, thanks to the Draghi government, this positive momentum will be prolonged – enabling the best use of European resources – and, at the same time, capable of attracting new foreign investment. The preconditions are certainly positive.
Interview with Massimo Trabattoni, Head of Italian Equity.