“European stocks better than the USA – but watch out for inflation”

The Interview


“Inflation is one of the factors that in coming months will have the biggest impact on the performance of the financial markets”. That’s the view of Luca Riboldi, Investment Director at Banor Sim, who sees the scenario for equity as being good on the whole, but with some reservations.

The first half of the year saw shares perform well, but the markets seem to have entered a “lateral” phase with high volatility. In your opinion, will we have to get used to the idea of this scenario lasting for some time yet?
“The underlying situation continues to be positive for advanced countries’ equity products: the fall in oil prices and the signs of a recovery n consumption are driving profits in companies in Europe and the United States. But we need to consider that in the USA multiples are still high and so we don’t see much room for a further rise in value”.

So you’d place your trust entirely in European stocks?
“On this side of the Atlantic we still have an unexpressed growth potential, given that shares are traded in lower multiples and the recovery stage of the economic cycle is still in its early days. However, it’s important to keep a constant eye on inflation. If it stays near zero for too long, there’s a concrete risk of corporate profits levelling off or falling. Given that they can’t increase prices, companies are focusing mainly on volume, but this trend can’t last forever”.

Are you worried about the tensions in the emerging markets?
“The slowdown in Chinese growth is clear to see, as is the fragility of other developing countries, which could suffer even more when the Fed begins the process of normalising rates”.

So you see a difficult outlook for the Italian companies most focused on exports?
“There are competitive companies in the global markets that so far have stood up well to the slowdown in the emerging markets. Think of Luxottica, Campari and Brembo, for example. Healthy companies with a good growth outlook, but as I said before it’s important to understand how the price index will evolve over the medium term”.

Can the decision to go for a long/short equity be explained by the difficulty of seeing a clear direction in the medium-term market?
“Italy Long Short Equity wasn’t created for cyclical reasons. It’s run by Banor Sicav, which is part of our group. In the ‘league table’ for 3-5 year products drawn up by independent companies it’s constantly in the top 3 products for performance achieved, thanks to an expert management team that focuses on 30-40 positions in the long segment (ed. note: betting on the securities increasing in value), and 20-30 in the short segment (ed. note: potential fall in share prices).

What are the most representative stocks?
“ENEL and Eni lead the way, then come Intesa San Paolo, Unicredit and Generali”.

Judging by those names you seem to be placing your bets on a recovery in financial stocks…
“That’s the case. After the restructuring we’ve seen in recent years, there are companies in the sector that can achieve significant growth. And the law on cooperative banks, the ‘popolari’, which requires the bigger ones to become public limited companies, will start a ‘Risiko’ [an Italian board game] in the sector, with medium-term benefits for the companies concerned. More generally, we’re confident in the Italian economic recovery, which should benefit companies focusing on domestic consumption trends”.

And what’s your view of the bond segment?
On that front, we don’t see major value. Last Tuesday [27 October], 24-month Zero Coupon Treasury Certificates (CTZ) were being placed with negative returns (ed. note: -0.023%) and the next day we saw the same thing happen with six-month Treasury bills (BOT) (ed. note: -0.055%). In the case of BOTs, that’s the first time this has happened in Italy, although in Germany they’ve been getting used to negative returns for short-term products for some months now. In these conditions, not only is there no return, but the risks for bond-holders also increase in the event of shake-ups on the bond market arising from rates movements in the United States”.

The sunset of the BOT people will be a key driver for growth in the asset management segment: how long can this trend last?
“I agree. With government bonds no longer covering the real value of the investment, unless with long-term products (with all the unknowns that they involve), growing numbers of investors are turning to the professionals. That’s also true for high-worth investors, who by their very nature are interested primarily in protecting the true value of their wealth. I’m convinced that this golden period for the sector will continue at least until the end of next year, and I wouldn’t rule out its continuing into 2017”.

We still need to see the effect of the Directive on markets in financial instruments (MiFID 2) , which will require greater transparency on the costs of financial products…
“As far as Banor is concerned we don’t expect MiFID 2 to have a great impact, given that we don’t work with retrocession on third-party products”.

Do you see any growth prospects for fee-based advisory services?
“In our case, that’s a service we only provide for clients entrusting assets of not less than 3 million euro to us, since it requires a great deal of work for our team. We’re committed to guaranteeing the utmost quality”.

Four billion in assets under management, with a team of 75 professionals
Banor Sim has around one thousand clients under direct management and assets of around 4 billion euro. Numbers that make Banor one of Italy’s leading independent securities brokers, specialised in capital management and advisory for high worth clients.

In addition to asset management and family office services, the company also provides advisory services for extraordinary financial operations, placement, reception and transmission of orders and trading on its own account. Banor began life in 1992 under the name of Banknord, as a private banking vehicle for a pool of banks in northern Italy. In 1999 it was bought by a group of private investors led by Massimiliano Cagliero (formerly of Goldman Sachs and current chief executive officer, and owner of 60% of the company’s equity).

Banor Sim has offices in Milan and Turin, and also in London, as a result of its acquisition of a holding in Banor Capital Ltd (formerly Proxima Investment Management Ltd.), which manages the Luxembourg-based Banor Sicav. The company has a staff of 75, with its investment business (seven lines of asset management) headed up by Luca Riboldi. In 2013 Banor obtained Global International Performance Standards (GIPS) certification, attesting to the quality of its investment process and issued by PricewaterhouseCoopers. Banor is currently engaged in its first roadshow in Italy: five cities, starting with Rome, where tomorrow [3 November 2015] it will have a meeting “behind closed doors” with its institutional clients.

Original article in Italian language, available here: Affari & Finanza, November 2, 2015.


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