TRACKING TOP-QUALITY MADE IN ITALY

Since the beginning of the year, the Italian stock market has recovered around half of the 2018 loss. Let’s begin with the rally at the start of the year. What are the drivers?

Recovery was quite intense in January and involved the United States, Europe and Japan. It has been clearly felt also in Italy because our listing has a high beta (variation against the world index), given the significant sector concentration that characterises it.

This movement has primarily allowed stocks penalised particularly strongly in December to bounce back from minimum levels. Cyclical stocks are amongst these.

In February, it was the turn of the luxury segment, reporting positive results, that drove recovery on these stocks, which had emptied from the system. In fact, towards then end of the year, fears over slowing of the Chinese market, along with upheaval in France that lead to closure of important boutiques over the Christmas period, provoked generalised sales in the sector, which were counterbalanced by results and forecasts announced by the companies themselves.

In this context, do you believe there are signs that we can return to successfully focus on fundamental analysis to identify value opportunities?

«We believe that it is high time to return the main focus to fundamental analysis, thanks to normalisation of interest rates.»

In fact, interest rates at zero had distorted the market, as unlimited cash availability allowed companies burning liquidity to survive and even to become leaders, squeezing competitors, thus making fundamental analysis complicated, as its principles are based on identifying healthy companies through their ability to generate cash, the true source of value.

Regarding the Italian stock market, which sectors do you think hold the best investment opportunities in terms of underestimation?

 I won’t specify sectors but rather specific characteristics. We believe that made-in-Italy production, which expresses the most genuine and globally valued aspect of the Italian economy, fruit of healthy business activity in our country that has been able to defend itself and often conquer segments of foreign markets even when the exchange rate was unfavourable and Italian GDP wasn’t growing, is where attention should be focused. Companies, generally of small and medium dimensions, which represent a tangible manifestation of industrial and fashion areas, differentiated by high-quality and strongly competitive.

Interview with Massimo Trabattoni, Head of Italian Equity