Arrival of the pandemic gave a final push to numerous epochal changes that were already underway. Many economists and other experts are interpreting the effects of Covid-19 on our society from this perspective: we have entered a “New Era”. This term refers to the long-term nature of the changes that include the new habits of millennials and the effects of climate change. But will the arrival of this “New Era” also have effects on the Italian stock market? We ask Massimo Trabattoni, Head of Italian Equity.
“There are companies with a significant impact on Italian stock market indices that do not have a promising outlook in this new context. To be clear, if they do not evolve, they risk being overtaken by new players in the market. The traditional banking sector, for example, is currently strongly threatened by the fintech world”, explained Mr Trabattoni. Remaining in the financial context, the impact of new technology is particularly evident in asset-management platforms, amongst the most efficient and profitable on the market. The same applies for the many fintech and smart solutions that have been able to take market shares from traditional banks, particularly in areas with higher profit margins. These new market players, supported by the ease of raising capital, are characterised by streamlined structures that are relatively low cost and often based on cloud computing. All of this translates into one word: competitiveness, allowing them to take customers from traditional operators that perhaps entered the “New Era” too cautiously or are yet to do so.
The same phenomenon can also be seen in other sectors. The oil industry, for example, has a significant presence in the Italian stock market and can rely on leading blue chips in fossil fuel sectors and other businesses, of equal importance, but which are far from being green. “Two of the companies most active in the field of renewable energy” highlights Mr Trabattoni “started in areas with very little to do with sustainability”. From a past composed of metalworking facilities and petrol refineries, they have been able to transform themselves into green companies, through generous public incentives”.
But energy is a sector that will see new challenges in the future, dictated by this “New Era”. One of these is certainly hydrogen. Thanks to acceleration of the financing project promoted by the ECB and the European Union, hydrogen is attracting great interest from financers and investors. Various Italian groups are involved in the development of this new energy source, both in terms of infrastructure (distribution) and research. These are often companies that generate income streams from other businesses, but which are monitoring new market trends and associated opportunities. In addition to this type of company, for which hydrogen is really an attractive yet secondary area of business, there are new companies, small but very innovative, which are ready to list on the stock market and, at least potentially, to grow at significant rates.
The arrival of new innovative companies on the stock exchange is actually a phenomenon seen across all sectors. The reason is simple: all areas of our society – work, recreation, consumption, and our relationship with the environment – have changed or are changing, and business models that do not adapt quickly become obsolete. “Rather than the sector itself ageing, it is the way of doing business in the new global context that has changed, taking into account the expectations of consumers, who are increasingly aware of sustainability and safeguarding the environment and society”, explains Mr Trabattoni.
In his opinion, the main difference from the past is that investments in research, innovation and development – that were previously funded like one of the many other activities of the business, perhaps necessarily as they did not always produce immediate results – are now becoming fundamental to ensure the future of a company. New generations, and not just millennials, are ready to pay a higher price for a high-quality service or product, providing that it is sustainable and certified. The theme of a sharing economy, i.e. using a product without owning it, and the habit of reviewing services on social platforms, represent epochal changes that affect companies. In the “New Era”, in fact, the valuation of a company cannot be based solely on its figures but must also consider reputation and brand perception.
“This is a change in the approach to investing that, rather than analysing sectors, requires greater analysis of various themes within individual sectors. Leaving traditional sector classifications behind, the companies to watch are those best aligned with the future demands of consumers. We cannot limit ourselves to valuations linked to traditional or historical financial parameters. Instead, we need to attempt to outline them through forecasting, in order to cross reference current prices with the position of the company in the new global scenario, the New Era”, concludes Mr Trabattoni.
Interview with Massimo Trabattoni, Head of Italian Equity.