Market Insight 2011 Q1 Italy

Italian investors have regained confidence in the global upturn. Although they are not committing fully to the positive trends, they believe that a strong 2010 will also lead to opportunities in 2011.


Equity markets in particular have convinced interviewees with the asset class looking to benefit the most from strategic asset allocation decisions.

They also forecast a testing year for the bond markets. The challenges for governments across the world will continue and should the Euro debate be picked up again, this will have further impacts on European government bonds.

The interest rate debate was addressed by each investor Expert Investor Europe spoke to. Across the board the earliest raise is expected for the end of this year while one investor was thinking it may take as long as early 2013.


News Roundup
• Italy’s prime minister, Silvio Berlusconi, is to stand trial on 6 April on charges of paying for sex with an underage prostitute and abuse of office.
• UniCredit continues to review offers for its asset management unit Pioneer. Chief Executive Federico Ghizzoni announced they will finalize the process in two or three months. Most recently Italian news debated over a potential merger with Intesa Sanpaolo’s Eurizon.
• Following the Libyan turmoil, the chairman of Pirelli & C SpA, Marco Tronchetti Provera, has resigned from the advisory board of the Libyan Investment Authority. The Libyan Investment Authority is UniCredit’s eighth- largest shareholder (ca 2.6%); The Central Bank of Libya owns nearly 5%.

Hot Topics
What everyone is talking about
• ETFs – out with active
• US equities – the recovery must start soon
• Peripheral Europe – an opportunity for value
• Fixed Income – the opportunities in this troubled asset class
• Inflation and interest rates – what is going to happen next?

Key points of the four biggest interviews

Investment Director, PWM arm for asset management division of global insurance group
• Italy + peripheral European markets are increasingly interesting
• Sceptical on EM equity and bonds, economic growth rates are interesting, but valuation might be difficult
• ETFs: fast and efficient exposure in certain areas (even for segregated accounts)
Head of Fixed Income Investment Manager (private & institutional
• EMD: currencies alone are good as diversifiers
• ETFs are a good tool in general, mostly for thematic ideas
Fund Selector and Advisory, Fund of Fund provider
• It will be a very tough year for bonds
• Eurozone equities can perform, the only problem could be interest rate rises
• Positive on US equities, but unemployment a danger
Portfolio Manager, PWM arm for global AM
• Positive on equities, more so on developed markets than EM
• For the short term the US macro data and economy seem in good shape
• ETFs good for tactical moves and because they are convenient

Asset classes

Italian investors are cautiously positive on developed market equities, in particular those stocks linked to the exporting industries following the currency crisis.

While the US is considered to be an important driver of global growth, selected European countries, such as Germany, were expected to fare well in the current economic climate.

Fixed Income
Despite the high expectations for equity markets, interviewees put an emphasis on the significant parts of portfolios invested in long term fixed income vehicles.

The crisis highlighted that asset and capital protection remain at the highest priority. Government bonds are regarded with suspicion, but there is still interest in credit and (to a lesser extent) inflation-linked bonds.

Emerging Markets
The region has delivered returns and security during recent years and the long-term sentiment towards this area remains strong. However, there are concerns about current valuations and there is no certainty over how long the mainstream EMs can continue to grow.

There is interest in the less-developed parts of EM – the Next 11, CIVETs and a whole row of frontier markets are of interest but perhaps not yet, especially in the light of the domino effect in North Africa, which has reminded investors how quickly political risks can escalate in the developing world.

Most investors we spoke to were very positive on exchange traded funds. There seems to be a dispute over how they should be used: whether as a way of accessing the most liquid, efficient and biggest markets (on the grounds that there is no alpha to be made there anyway); or the least liquid, efficient and smallest markets (on the grounds that it’s tough to find good active funds).

Whatever the reason for choosing ETFs as part of a portfolio, investors value them as tools for quick diversification. According to interviewees, most important benefits are low costs, liquidity and tradability.



Following the need for reforms across Europe and stability within each member state of the EU, investors have expressed a sense of urgency about the political future of Italy.

Whatever the fate of the current government, they feel that it is vital to ensure enough attention is paid to dull economic questions and the state of the financial services industry, which can get lost in the high-voltage, scandal-loving political life of the country.

The sector should do well no matter what happens politically since it is no ones interest to make enemies of investors.

There is some pressure among Italian investors for the government to sort out the tax differences between Luxembourg Sicavs and Italian funds. If this does come about, it could change radically change the fund management landscape in the country.



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