Recent shockwaves in the Italian market caused by political turmoil and a stalling baking system can be exploited to generate alpha, particularly in the broader financials space.
This is according to Michael Clements, head of European equities at SYZ Asset Management, who has found pockets of opportunities in the Italian markets arising from the aftershocks of 2016’s seismic political events.
Despite keeping away from Italian banks, loan servicers and asset managers are the best positioned businesses in the market, Clements explained in his latest investment insight.
Eurocastle and Anima in particular are two companies that boast opportunity, he said.
As the leading Non-Performing Loans (NPLs) servicer in Italy, Eurocastle will play a large part in management the enormous stock of NPLs in Italy, Clements explained.
As for Anima, the largest independent asset manager in Italy, its shares have been under pressure as a result of struggling distribution partners including Monte Dei Paschi.
‘However, at current levels we feel much of the risk is priced in and actually there is considerable upside from its developing relationship with Poste Italiane,’ he said.
Under-researched stock Banca Sistema is often overlooked but offers an attractive, low-risk business model, Clements added.
The specialty finance company acquires trade receivables owed by the Italian public administration.
‘The low valuation reflects a lack of wider interest from other investors and general antipathy towards Italian financial stocks.’
The Italian government’s referendum defeat in December signals further uncertainty for the market, Clements said, which suits a contrarian style as it could generate more opportunities with attractive valuations.
‘With this in mind, as usual, we put our crystal ball to the side and favour an opportunistic "wait and see" strategy.’