“After the strong recovery in April, the stock markets continued the race (S&P 500 + 4.2%, Nasdaq + 5.9%, Nikkei + 8.5%, Stoxx 600 + 3.8%) benefiting from optimism for the easing of lockdowns and unprecedented measures taken by central banks and governments to deal with Covid-19, while on the other the tensions between the US and China have rekindled. ”
“The Italian markets underperformed the main indices (FTSEMIB + 2.7%, FTSEMID + 2.6%) on the constant fears of a strong slowdown in Italian growth with a consequent increase in public debt”.
The BTP went well, as confirmed by the further reduction in the spread:
“The purchases by the ECB, the expectations of a further enhancement of the € 750 billion ‘Pandemic Emergency Purchase Program’ (PEPP) at the next meeting in June and the proposal of the Next Generation EU plan (i.e. the Recovery Fund) allowed the BTP-Bund spread to decrease by 43 basis points (to 1.92%) “.
In this context, Equita SIM announces that, “in the recommended portfolio, we confirm a defensive positioning (we remain underweight compared to the benchmark at 83.1% of invested vs 95% neutral weight), favoring defensive titles (Utilities, Healthcare and Telecom), and maintaining a underweight on the financial sector. In the small-cap portfolio Falck Renewables enters the Best Picks selection (therefore with double weight compared to the other titles) instead of Acea (after the good performance) “.
In general, we are already positioned in our portfolios to benefit from the themes underlying the European plan: erenewable energies, digital, (with a particular focus on cybersecurity), circular economy and public health with titles such as ENEL, Terna, Telecom Italia and Fineco (among the large caps), Acea, ERG, FKR, Inwit and Reply (among the small caps). The performance of the main indices from the mid-March low suggests caution, as it anticipates a V-shaped rebound in the economy. We expect, however, that the reopening of the economy will take place with great caution. The valuation of the markets does not seem attractive: the S&P 500 is trading at 21.5x PE fwd 12M (Stoxx600 at 17.5x vs 15x average over the past five years).
Piazza Affari: “How much space for cyclicals” from “Il Rosso e il Nero” by Alessandro Fugnoli (Kairos)
In his weekly newsletter Il Rosso e Nero Alessandro Fugnoli, strategist of the Kairos group, talks about the “first technical tests of rotation with sales of technology and even aggressive purchases of cyclicals and value“. There are several questions that Fugnoli asks himself:
“How much space does this rotation have? Could it be a structural phenomenon or, at least, a tendency to rebalance that can last at least a few months? What space to give to cyclicals?
“The answer obviously depends, first of all, on the real trend of the pandemic. Assuming, as per consensus, that this is in the declining phase and that in any case we are less afraid, the question then depends on the extent of the recovery – explains Fugnoli – If for the next few years we imagine economies supported by every conceivable fiscal and monetary stimulus and a growth that is led by forced marches on a level higher than that of the last decade, then the space for traditional cyclicals can become strategic. On the other hand, if we hypothesize a return to the slow pace of the pre-Covid economy, made more irregular by the difficulties of adapting to a world where the virus is not eradicated, then we will certainly have other flare-ups of the cyclicals, now terribly depressed, but not a return to the evaluations, however modest, that they had before the epidemic “
“We like to think – he continues – that the scenario will be the first and that the 1920s will be a great experiment not only for monetary and fiscal reflation but also of real growth. We are talking about an experiment born from the frustration with the secular stagnation already evident for some years and from the despair created by the biggest recession of the last century, the one we are experiencing. After all, the mountains of money that governments are earmarking for business support are largely destined for traditional sectors. There are of course to check the particularities of each sector. The car one is the most interesting, because it is a tangle of contradictions. Demonized if with fossil traction, angelic if electric, recipient of fines and regulatory harassment in the last decade and billions of aid in this, destined for a terminal decline up to three months ago and resurrected today as the only alternative, together with the scooter, to dangerous public transport, the car is not necessarily that desperate case that seemed to be ”.
“In general, in any case, the stock exchange performance difference between technology and the rest of the world has reached levels that make it prudent, at least, a rebalancing of portfolios. Gerard Minack calculated the performance of what Albert Edwards calls the SP 494 (i.e. the Standard and Poor’s 500 without the six sacred monsters of technology) and found that it has the same profit levels as 2014 and that this year it performed exactly like the other exchanges. Of course, the persistence of low rates that we can well imagine for the near future will be favorable for growth stocks, but the imbalance between these six companies and the rest of the economy is beginning to become visible even to the most distracted of politicians. Neither Trump nor Biden will want to deprive themselves of such precious national champions in a fragile economy and in one cold war with China, but some containment action, or at least supporting competitors, is more likely every day. As for the rest of the economy, this is where the trillions of public aid of all kinds will spill. In practice, a weight shift can be considered towards the cyclicals for the next two to three months. Then, waiting to understand what kind of recovery will loom for the next few years, we can go back to a portfolio weighed on the indices “.