Turmoil in Europe/Waiting for Opportunities
Trader Scott’s Market Blog
February 22, 2017
The political turmoil in Europe is continuing. The Euro is in a major downtrend, while the $ is in a major uptrend. This won’t last forever, but it’s in force currently. A coming break below par on the Euro with ending action, would be an area with the potential for a tradeable rally. The $ continues in a major bull market, notwithstanding Trump’s totally useless attempts to talk the $ down.These attempts will fail until the $ puts in a major top – and that is coming. The technical situation currently is an intermediate downtrend/re-accumulation within a major uptrend. And the support and resistance levels are laid out here. I left several comments (beforehand) about the 99.40 level as being the first high probability level for the end of this intermediate downtrend. Meaning, a break below 99.40 with ending action would be a high probability/lower risk entry point back into the $. When the USD was smack into the big resistance area there were many clowns who were proclaiming the “new Trump $ bull market”, while my view was totally opposite then. They were spewing that nonsense right into the 103 resistance area in the $. The intermediate downtrend shut them up, but they’ll be back and probably right in time for the next top.
In the meantime, the downtrend in the Euro continues, and it will generally help the equity markets (priced in Euros). And we can see the problem for overseas investors in Italian stocks, for example – looking at the performance of the US$ based ETF for Italy – EWIvs. the Italian MIB. So the volatile political situation in Europe could create some great opportunities for entry points into European shares, and a bottom in the Euro/top in the $ could be an extra for overseas investors. There are some asset managers already bullish on Italy, but it’s way too early for me, and am waiting for it to play out:
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.”
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.
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.”
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.