DAVID KARNI
HEAD OF PORTFOLIO MANAGEMENT
BCC RISPARMIO & PREVIDENZA
Score prediction: ITALY 2 – SWITZERLAND 0
INVESTMENT INSIGHT:
Looking at the Italian financial markets, year-to-date, the main index FTSEMIB is up 13.70% – 1% below the Eurostoxx50.
It’s worthwhile remembering that the index is heavily exposed to some sectors: Financial (30%), Utilities (21%) and Cyclical Consumers Goods (17%) are the main three.
It’s interesting to note that the index allows exposure to the cyclical flavour that started last November, and if we add the fact that Italy will be the first country to receive the NEXT GENERATION EU plan we see room to increase the allocation.
Another point to consider when we evaluate the investment in the Italian market is the dividend yield. The Italian index has one of the highest dividend yields in the Europe markets and this is a crucial factor when we seek for quality and in this environment of zero or negative rates it becames crucial for an increasing part of the financial markets to find some substitutes.
The last point to consider about Italian equities is the attempt from the previous government to improve the quantity and quality of the market itself, by pushing investors to finance local mid and small caps. This push had produced, in the past, some encouraging steps towards creating a more dynamic market and we expect that this can come back on the agenda of the current government, which will push it forward.
For the fixed income market, it is well known that there is a gap between the yield of BTPs and similar countries; this gap was formed due to political uncertainty in previous years.
We think that this can be reduced in the next few months, when the political agenda of reforms will take place.
It will be crucial for Italy to let the current government work, with widespread trust in Mario Draghi not only internally, but especially within the European Commission and the others countries.
MICHELE DE MICHELIS (and team)
CHIEF INVESTMENT OFFICER
FRAME ASSET MANAGEMENT
Score prediction: ITALY 2 – SWITZERLAND 1
INVESTMENT INSIGHT:
The Swiss Stock Exchange, as many know, is composed of a few heavily-weighted shares and it can produce surprises. Not everyone knows, however, that the Swiss National Bank (SNB) is listed on the Swiss Stock Exchange and it has a ‘particular’ valuation.
Over the past two years, accumulated earnings hit CHF 100bn, taking equity capital to CHF 220bn and total assets to more than CHF 1,000bn.
The SNB’s main objective is to guarantee price stability and control the fluctuations of the CHF against the main basket of currencies. Reaching these goals, the central bank is producing enormous profit.
The bank is overseen by the Board and, if it is unchanged over the next few years, it could continue to create wealth that is reserved just in part for the Cantons and the Confederation.
The current Market Cap is more or less CHF 500m, which is less than 0.25% of the SNB’s heritage or 1% of the gold reserves (1,040 tons) or, paradoxically, the remuneration of the general management team.
SNB was founded in the 1907, a time when horses and carriages were the main means of transport. Since that year, the Central Bank maintained the same number of shares (100,000) that are almost not traded by investors. As everyone know, markets can remain irrational for a long time but, the greater the distorsion, the greater the adjustment. Those already invested will take some profit, but getting into the race will be practically impossible.
