Something is moving on the Italian market. In the last month, relative performances have been uneven at both the level of sectors and securities in the same segment. On the one hand, for example, utilities seem to have lost momentum, while oil has recovered well. On the other, some mid-sized banks – Ubi, Bper and Monte dei Paschi di Siena – have outperformed other securities from the same sector, such as Unicredit, Intesa, Banco Popolare and Bpm, which have fallen to lower lows.
It is a confusing situation that requires a significant interpretative effort. The movement described above reflects neither the prospects of possible capital increases – otherwise, it would be impossible to explain why Intesa is among the most heavily penalized names – nor a relative preference for the soundest banks. It may, in part, be due to a move on cooperative banks, in view of changes to their articles of association, to be used as an investment play in the second half of the year. It may also refer to the closure of several related positions – long on Intesa and short on smaller banks – by hedge funds and may possibly indicate a downsizing of positions on Italy. However it is be viewed, this dynamism demands a closer look at the banking sector from now on, in view of possible position-taking.
In the meanwhile, the quarterly results did not have any particular surprises in store: net interest remained under pressure, while credit quality indicators were relatively stronger than expected. However, there was continuing difficulty at the level of the macroeconomic scenario, which is struggling to consolidate the recovery. Some numbers – such as the manufacturers’ PMI for April, which expresses the confidence of purchasing managers – are positive. Yet a single figure does not make for a trend; it must be confirmed by a consistent series of indicators. For now, it remains a sign of hope, at least until a resumption of capital expenditures takes form.
In the interim, last month the U.S. dollar resumed appreciation against the single currency. From now until year-end, there will be one or perhaps two rate increases by the U.S. Federal Reserve. It is a sign that the United States are moving towards a pseudo-normalization of monetary policy, while Europe is lagging behind by at least 18 or 24 months, judging from the economic cycle. In any event, the euro/dollar exchange rate will remain within a range of 1.10 to 1.20 for the moment. The conditions for reaching parity, at least by year-end, are not in place.
By Massimo Trabattoni, Head of Equities for Italy at Kairos, for AdvisorPrivate’s Italian Times column.