The fears that characterized January dragged on this month as well. The recovery of the last week certainly does not erase the losses from the beginning of the year, but it gives new life to a situation that could potentially become dangerous. In fact, alongside the usual general fear of a slowdown in growth, there is concern for the banking system, not only in Italy but also in Europe, which has led to strong sales of securities in the financial sector. However, we are relatively optimistic.
At the macro level, according to the latest Bank of America Merrill Lynch survey, the number one risk for investors is no longer China but a US recession.
The synthetic indicator of the Chicago Federal Reserve, which provides an overview of the health of the US economy, is still far from the levels associated with an imminent recession (-0,7). Changing perspective, the risk of recession estimated by the Cleveland Fed and deduced from the difference in interest rates (yield curve) seems quite low (around 6% in the next 12 months) and in any case not so serious as to justify the strong sales that have marked the markets in this last month.
Let's move on to China. The fears about Chinese economic growth that triggered the sell-off in August 2015 returned in January 2016. Every disappointing and lower-than-expected macroeconomic data triggers a particular nervousness among investors. However, it is good to keep in mind that we are talking about an economy that is growing at a rate of 6,8% per year, with a clear growth target (between 6,5% and 7,0%) and a central bank that it is loosening the credit links to favor it. Furthermore, the massive capital outflow of the last year has not had a major impact on the exchange rate for the time being and is partly related to the deceleration of the economy and the market liberalization process.
At the end of January then a real storm broke out on the banks, Italian and otherwise. Investors have been overwhelmed by concern about non-performing loans and our banking system is the one with the highest percentage of non-performing loans. The agreement between the European Commission and our Government for the management of NPLs through a securitization and subsequent sale of the same seems to have served little purpose. Mario Draghi also intervened, stating that a significant increase in the requirements imposed on credit institutions will not be required of the banking system. Although with risks to monitor, a bit like with all things, our banks are more solid than they may appear.
Most of the market indicators in the last month have deteriorated in conjunction with the stock market crash. The AdviseOnly Risk Barometer worldwide remains below the threshold of 50 (i.e. higher than normal risk level) but, from our point of view, it is still early to talk about an imminent calamity: the systemic risk is higher than normal, but it's not dramatic. Similar signals come from the ECB's systemic risk indicators.
Baseline: We don't think the baseline has changed
From our perspective, the collapse of most risky stocks seemed exaggerated, at least compared to the current level of systemic risk.
We will perhaps be repetitive, but the market reversal has not affected our investment scenario which, in summary, envisages: a low risk of global recession; the gradual recovery of economic growth, driven by the USA; a positive boost from monetary policy, which in aggregate remains accommodative; good risk asset valuations despite negative momentum; valuations of the equity world, in particular, are better than those of government bonds.
Our investment ideas
In the last six months, portfolios (tactical and target) have suffered the decline in value of the riskiest asset classes. Compared to last month we have not made any changes in asset allocation: a situation of greater potential for shares vs. bonds;
we maintain a fairly prudent asset allocation but with moderate exposure to risky assets. The cash dose, the exposure to the US dollar and other safe assets have the function of protection against the «tail risk» (risk of catastrophes); the duration of bond investments remains low, with "tactical" positions on three fixed income themes: corporate, USD, Emerging markets.
Instead, the bet on riskier portfolios is in the energy sector and equities in general, which we believe has more recovery potential, given the decent valuations, very low bond yields and the "demand for yields" from the industry of world savings, including pension funds.
