Cnpr Forum: Positive trend for the financial markets

Tonelli (Cnpr): “Ensure correct application of ESG criteria”. Monteverde (Isnec): “Strategic accounting experts for new challenges”

Naples – “2024 started in a decidedly positive way for the financial markets after 2023 which, until October, had seen uncertainty prevail. The basis of this positive trend there are less negative economic data than expected, in particular economic growth, which is fueling a newfound appetite for risk from which the stock market is benefiting first and foremost. In the coming months, the factors of uncertainty will remain, starting from geopolitical framework which has worsened further, which does not yet appear to be priced in by the markets. Furthermore, the upward revision of economic growth forecasts, in particular for the United States, is impacting the monetary policy cycle which, after having reached the maximum levels of official rates, it sees above all the Fed stalling in starting the process of reducing interest rates, which will most likely be the first to cut the ECB, which has been putting pressure on the bond markets since the beginning of the year. year they record falling prices. Factors of uncertainty and, with them, significant levels of volatility will however characterize the markets in the coming months, both the bond markets – conditioned as mentioned by expectations on monetary policy – and the equity markets – conditioned by expectations on the dynamics of profits in a context of economic slowdown and higher debt rates”. This was declared by Giuseppe Patriossi (Prometeia Advisor Sim), during the Cnpr Special Forum on the conference ‘Scenarios of social security and finance: new room for maneuver for central banks and political elections in the USA and Europe’, promoted by the Pension Fund for Accountants and Accounting Experts, chaired by Luigi Pagliuca, which took place in Bologna in the Imperial Hall of the Royal Carlton hotel.

“2022 HAS ALLOWED INVESTORS TO REVIEW ASSET ALLOCATION”

“The management of Italian institutional portfolios – added Patriossi – has proven to be mature and aware in dealing with the strong crises of recent years, especially in terms of of governance and investment processes which, thanks also to approaches based on integrated active-passive management, have contributed to creating very diversified and resilient portfolios. After more than ten years of zero interest rates and portfolios which, in that historical phase, maintained greater exposure to assets with a higher return/risk profile (for reasons linked to challenging profitability targets of pension investors), 2022 allowed investors to review asset allocations while benefiting from the context of higher rates. This has allowed us to review the asset mix, restoring an important role to bond investment classes, primarily government, and risk profiles that tend to be lower than in the previous decade. Investments on private markets remain a significant component of institutional assets, also due to their strong correlation with the real economy. In addition to the confirmation of the different asset mix – the reduction in real estate has been accompanied by a greater presence in the portfolios of investments in infrastructure as well as in private equity and private debt – we expect – he concluded – lower growth rates compared to recent years, especially on the portfolios of pension funds that record exposures in these classes closer to the European average”.

“FOR RISK MONITORING BANKS OFFER AD HOC PLATFORMS”

A focus on custodian banks was illustrated by Olivia Cattaneo (Bnp Paribas): “The role of the custodian bank is that of safeguard the assets of the pension funds and monitor the actions of the fund itself and its delegated managers. In recent years the role has been expanding to other services. In addition to protecting the Fund’s assets, these banks are responsible for making some internal processes more efficient to increase efficiency and are offering services with the aim of reducing risks for the pension funds and maximizing returns for members as much as possible. For risk monitoring, custodian banks offer specific platforms that have the objective of measuring performance and then help the banks in managing regulatory risk by supporting them in offering services that can assist them in managing continuous regulatory changes. As regards the efficiency of returns, the main services offered are the optimization of the recovery of foreign taxation and on the other the possibility of putting the assets to good use through a securities lending service which allows have additional returns”.

“THE CURRENT GEOPOLITICAL FRAMEWORK IS PARTICULARLY COMPLICATED”

The challenges for institutional portfolios were illustrated by Nino Mancini (Banca Patrimoni Sella): “The current geopolitical framework it’s particularly complicated. 2024 sees the European and American elections with the complication of conflicts in Ukraine and the Middle East which widen the risks of volatility for the financial markets. However, for institutional portfolios, having a suitable time horizon with the possibility of selecting financial instruments of excellent quality for a long period, is the best response to the volatilities of short period”.

“EQUITY HAS STARTED THE CORRECTION-PHASE”

Patrizia Noè (Credit Suisse Italy – Ubs Group) spoke about opportunities for investments in the second half of 2024: “The recent data on US inflation surprised on the upside reflecting some major seasonal adjustments as well as a recent increase in commodity prices. We are talking about a reversal in the deflationary trend that characterized the last quarter of 2023 and which caused a strong reaction on the markets: interest rates have returned to the peaks recorded at the end of 2023 and the stock a correction phase has begun. We are once again questioning that virtuous scenario, known as ‘goldilocks’ which is based on a virtuous combination of sustained growth and falling inflation. In the space of a few months we have gone from the strong optimism of the beginning of the year, when seven rate cuts of 25 basis points were discounted in the US, to the current context in which the market is discounting just over one. Our economists have also reduced expectations for rate cuts, but we remain convinced that the Fed will be able to reduce the cost of money by 50 bps in the last quarter of the year. The inflation trend in the US will resume its virtuous path in the coming months, a belief based on the slowdown in wage growth, a cooling of the dynamics of rents and prices of consumer goods which are returning due to the improvement recorded in supply chains. For the ECB, however, the monetary policy objective is clearer, thanks to sharply declining inflation and rather anemic growth so far: we therefore expect a reduction in the cost of money by 75 basis points by the end of the year”.

“On the growth front – Noè again – we also note a widespread improvement in manufacturing activity after a long period of contraction, a particularly favorable scenario for the European economy and some emerging markets. The main element of risk remains the geopolitical one which could push the price of oil higher. Overall, the decline in inflation together with growth which will remain solid represents a favorable macroeconomic combination for stocks and the more cyclical sectors. We expect a good stock market performance, with attractive earnings prospects for the Eurozone and emerging markets. In the USA we favor sectors linked to digitalisation and AI. This geographical preference is associated with the belief that at a sector level we will see an improvement in the profile of earnings growth of the more “old economy” sectors such as industrial, chemical and healthcare during the second half of 2024. The most cyclical areas of the price lists, after the first quarter of 2024, they should start to grow again and profits are expected to accelerate for the rest of the year”.

“Price STABILITY PRICES IS THE PRIORITY OBJECTIVE OF CENTRAL BANKS”

He focused on the main challenges for central banks Paolo Dallera (Eurizon Capital Sgr): “The priority objective of central banks is price stability, for the Fed also full employment. The ECB and the Fed have launched a powerful monetary restriction maneuver to combat inflation, through an increase in official rates and a reduction in assets on balance sheets with the aim of draining liquidity. Also thanks to these interventions, inflation has fallen but rates are now higher, resulting in a restrictive monetary policy. Central bankers have therefore opened up to their reduction. This phase of rate reduction will not be without problems. Inflation still shows some resilience and growth is positive, surprising all expectations. Why then cut rates? Keeping rates at these levels would risk opening up financial crises in particularly indebted sectors. A further problem that complicates the decision-making scenario is the fact that not all geographical areas move at the same pace. Europe, which is growing less, would need a rate cut first.”

“Returnable The scenario is even more complicated – Dallera reiterated – there are the next elections in 2024 in Europe and the USA and, above all, the geopolitical risks of war conflicts. The latter can have significant negative repercussions by creating an increase in the prices of raw materials and those linked to energy and blocking supply flows which would be toxic for the markets. However, there is a positive factor: for the first time in 2024, central banks, having raised rates, have significant room for maneuver to intervene in the event of market tensions. Spaces that they didn’t have when rates were close to zero”.

“THE ECB CAN CUT BEFORE AND FASTER THAN THE FED”< /strong>