Ignore Italy’s seemingly endless political turmoil and you’ll see the value in Italian stocks, according to Amber Capital UK LLP.
The resignation of former Italian Prime Minister Matteo Renzi as leader of the ruling Democratic Party is blinding investors to attractive bets on the company’s equities market, said Giorgio Martorelli, a portfolio manager who helps oversee about $1.4 billion at the London-based hedge fund.
"This is not new for Italian companies,” he said. “Notwithstanding political instability, many of them have delivered outstanding results. There is a huge underweight in the market driven by political noise around the Democratic Party."
Renzi’s resignation as party leader is just the latest chapter in a story of unstable Italian politics that stretches back years. Renzi, who stepped down as prime minister after a resounding defeat in a constitutional referendum last year, quit as leader of Italy’s ruling party Sunday, leading to talk of a split in the party and undermining the stability of the government now led by Paolo Gentiloni, the fifth prime minister since 2011.
Amber Equity Fund, which has delivered a 2.1 percent return this year, focuses on industries in which consolidation among mid-sized companies could create value. That includes banks, local utilities and some government-backed companies, Martorelli said. Amber prefers Italian and Spanish stocks to their French and German peers, he said.
Banks Bets
In banking, the fund owns stocks of Bper Banca SpA and Banco Popolare di Sondrio and took part in the capital increase of UniCredit SpA, Italy’s biggest lender, earlier this month.
“UniCredit is a very liquid bank and the new management team has presented a very credible turnaround,” he said. “This is the most interesting restructuring case in southern Europe.”
The optimism toward Italy’s ailing banking industry is rare among equity fund managers. The Italian government is working through a rescue of Monte Paschi di Siena SpA, a number of smaller banks have had to call upon state aid and lenders are weighed down by about 360 billion euros ($382 billion) in troubled loans.
"Political uncertainty remains, as seen again this weekend, and as a result we are mindful of more domestically focused areas of the market with financials offering good value but still carrying most of the political risk premium," said Diego Franzin, head of European equity at Pioneer Investments in a separate interview.
In other industries, Amber is optimistic about small local utilities including A2A Spa and Ascopiave Spa, a sector in which Martorelli foresees potential mergers and acquisitions.
The fund also owns stocks of Anima Sgr SpA, one of Italy’s largest asset managers which has announced a partnership with BancoPosta Fondi SGR. The deal is expected to be completed in the first half of the year.
Though companies have proved resilient to the constant political turmoil, Amber has a clear preference regarding the outcome of the current situation, Martorelli said.
A year from now “we are hoping for a stable political landscape with snap elections and the Democratic Party gaining a majority,” he said. “If this doesn’t happen, a fragmented parliamentary landscape, in which Italian companies have been operating for the last 20 years, would be preferable to a populist Five Star government which would be seen by investors as a brake for structural reforms the country needs."
To contact the reporter on this story: Chiara Albanese in Rome at calbanese10@bloomberg.net.
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Angela Cullen, Ross Larsen
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