The scenarios of Italy's ungovernability after the elections evoke the specter of panic-stricken markets and fleeing investors of a few months ago. During the week, sales hit Piazza Affari again and the spread raised its head significantly, exceeding the safety level of 320, now far from the "Monti threshold" of 287 points. For Claudia Segre, general secretary of Assiom Forex, at the moment the situation is under control and now we can speak of a "technical correction". But if we don't act, the state of grace is bound to give way to the judgment of the markets, which will once again remind politicians that reforms must be made.
Doctor Segre, what do you think of the market reaction to the Italian elections?
It can be configured in the sense of a technical correction. Volatility is not out of control and we are not in a situation conducive to speculative intent. The reaction on foreign exchange, bonds and spreads was predictable on these technical levels given the outcome of the elections. We have not had a massive market correction without resolution. We had a more than physiological technical correction which also offered good buying opportunities, both on bonds and shares.
Should we fear that the markets will return to the chaos of a few months ago?
We are now in a kind of grace period to arrive at a solution, without which the judgment of the markets could be more drastic. The positive news is that from the point of view of the banks the situation is unchanged, there are no tensions on liquidity which is under control and the banking system remains solid. On the Ltro front, the banks are not participating in terms of exit strategies, with the return to the ECB of limited amounts, because they are on the defensive, they are sitting on their positions and trying to understand what will happen. Instead, the urgency is financial and economic: the macro picture is what it is and we cannot afford the government's inaction, the country needs to restart.
Has the spread returned to tension, has there been a new flight from the Italian debt market?
A rise of the spread beyond 320 was foreseeable, now we are at 340 within a range between 320, the threshold for returning to safe levels, and the highest threshold of 360. In this situation we have auctions where we pay the debt more expensive but the request is extremely good, there hasn't been a lack of interest, the situation is under control. The problem is not offering the market the opportunity of having to be the one to remind politicians that reforms must be made.
How has the government bond market moved these days?
There have been two-way flows with portfolio adjustments along the curve, especially in the medium-long stretch, between 5-10 years, some profit taking especially among domestic investors and a repositioning by international investors interested in maturities at ten years. From the point of view of portfolio settlement, there were opportunities to enter 7-10 year bonds. If the tensions were to continue, they would impact above all on the short part of the curve.
In more general terms of assets per location, how to manage the portfolio?
Europe has entered the "lost decade", a situation of weak growth. In this scenario, the asset allocation towards Europe is made with a careful selection of companies and their balance sheets both for bonds and equities, opportunities must be taken with a grain of salt. In the USA, from which positive news is arriving, and in Asia, which confirms growth, investments continue to arrive and the diversification of local emerging currencies is confirmed.
The euro dropped back below 1,30. A lasting turnaround?
The euro is destined to resume its run but this weakness makes operators happy and helps Europe. The target we see is 1,28-1,32, a range that would suit everyone even if the US wants a range between 1,35-1,40.
Gold fell 5% in February, down for the fifth consecutive month. What do you expect for the yellow metal, should it still have a place in the portfolio?
Gold, as a defensive choice against share collapses or serious geopolitical events, no longer has a reason to be in an international market where volatility is much reduced. It remains a defensive choice for a residual part of the portfolio. Demand from central banks and other investors continues to exist and confirms a hard core of prices. But with signs of market normalization all investments such as gold, where there is no coupon return attached, fall a little short, because people are looking for a higher return.
What space for the shareholder?
In the light of extremely tight spreads on corporate bonds, the stock market becomes attractive again if accompanied by strong attention to financial statements and governance, as the Saipem and Finmeccanica cases have reminded us. Unlike the banking sector where listed bonds are competitive with shares, in fact, on corporate bonds the bond spreads yield little because they have already been bought so much. I don't have the coupon on the shares but there is the possibility that they will appreciate more.
Yesterday the Tobin Tax came into force, what do you think?
We believe the impact of the Tobin tax is rather diluted, we don't expect major problems in the sectors it affects. It's a bit early to make assessments but operators think that revenues will be lower than expected. The risk is that it will affect trading, not speculators but those who manage their portfolios using online platforms and this is not a good thing because they create liquidity.
