In May, the managers, interviewed by Morningstar in the latest monthly survey conducted among the main investment houses operating in Italy (in which 23 professional investors took part), confirmed the positive forecasts for the stock markets, while they revised the estimates on the prices of bonds.
Overall, the Morningstar Italy Investment Sentiment Index (MIISI), constructed on the basis of the probabilities attributed to different scenarios (rising, stable or falling markets) over a six-month horizon, is more optimistic on European stock markets than on the United States and to emerging markets. Furthermore, the forecast on the prices of Italian, German and American government bonds is moving towards neutrality.
Europe, eyes on profits
In May, the sentiment index on European stock exchanges stood at 69,66 points, up slightly from 67,37 points in April. While on an economic level, positive surprises now seem limited, attention is now turned to corporate earnings and possible upward revisions to EPS (Earnings per share). Indeed, after four years of constant disappointments, there are signs of improvement in the accounts of European companies.
The assessment of Piazza Affari is in line with the continental one (68,26 points against 67 in April). In the last six months (to 30 April), the Ftse Mib index gained 16,86%, thanks to the abundant liquidity on the market introduced by the European Central Bank with the Quantitative easing. Also on the macro front, some positive signals emerged, albeit in a context that is still very weak.
Usa, the macro picture is not convincing
The Wall Street confidence index rose slightly in May from 55,5 points in April to 57,39. Some disappointing macro data has raised fears of an end to the expansionary cycle, but Francisco Torralba, senior economist at Morningstar Investment Management, rules out that hypothesis for now. He admits, however, that the current situation could hold off the Federal Reserve's interest rate hike for a while longer. In any case, when it does happen, the tightening will be very limited.
Tokyo, the fight against deflation is working
The MIISI on the Nikkei 225 index rises to 65,45 points, confirming the positive scenario for the Japanese stock market. Managers appreciate the results of Abenomics (a series of government measures to stimulate the economy) and the Bank of Japan's efforts to fight deflation. The economy is also supported by temporary external factors such as the drop in oil prices and the low level of global interest rates.
Emerging markets are waiting for the Fed
In May, the managers confirmed sentiment on emerging markets. The MIISI rose slightly from 56,37 to 58,18 points. In particular, the scenario seems favorable for the Asian area, thanks to high liquidity and low rates. Furthermore, China should benefit from market liberalization and looser monetary policies. In developing areas, however, the uncertainty of “when and how much” the Fed will raise the reference rates remains.
Governments without direction
Fixed income is the segment most affected by the changes in manager sentiment in May. The MIISI index on the ten-year Italian BTP rose from 44,37 to 53,09 points, the highest level since the beginning of the year, that on the equal-maturity German Bund rose from 38,25 to 48,75 points and finally that on the Treasury from 35,75 to 47,5. The government bond market does not seem to indicate a precise direction, after having inaugurated the season of negative rates. The managers are convinced that central banks will continue to produce distortionary effects and the divergence in monetary policies will remain the main driver in the coming months. On the one hand, investors will seek greater security, on the other hand higher yields (and therefore lower credit quality). In addition, there is an increase in operators who are convinced that a phase of inflation is about to begin and that therefore the time has come for returns to rise.
Emerging debt divides managers
A separate discussion should be made for emerging debt. The sentiment index was virtually unchanged around the neutral backdrop in May. Managers are divided between negative forecasts, linked to the future rise in US interest rates, and positive ones, which can mainly be explained by the stabilization of the geopolitical situation, less dangerous inflationary dynamics and attractive yields.
Dollar at the end of the run
In May, the MIISI index on the exchange rate between the euro and the dollar remained unchanged at around 44 points. The currency market was very volatile in April and investors took advantage of it to rebalance their positions between the two currencies. Meanwhile, they continue to think about the effects of the strong dollar on the economy and the future decisions of the Federal Reserve.
