How to invest now that inflation is no longer scary

The experience of recent years has taught us that surprises can always be around the corner, but the fact is that thereInflation appears to be back under control after more than two years. In February, the Italian consumer price index remained stable at 0.8%, while the European one fell by two decimals, to 2.6%. A completely new scenario compared to the one experienced until recently (in October 2022 the inflationary peak was reached, with prices growing by 10.6% year on year at European level), which requires a portfolio check-up investments.

Central banks are in no hurry

“The premise is that the price trend has slowed down, but remains above the target set by the ECB (2.0%, ed.), which therefore awaits confirmation before start the cycle of cuts to official rates“, points out Giovanni Brambilla, investment manager of AcomeA Sgr. Which sees a still positive scenario for fixed income, which on the one hand offers high coupons, on the other benefits from the prospect of monetary easing. In fact, when central banks prepare to cut rates, the value of bonds already on the market tends to increase. “There bond component it remains interesting on the short and medium part of the curve. Among corporate issues we look with interest above all at the financial sector, while at the geographical level we look at emerging markets, particularly Latin America”, underlines Brambilla.

As for equities, AcomeA sees room for revaluation especially among the utilities (“who could benefit from the rate cut”) and the Telecom (“which could see an improvement in cash flows due to monetary easing, but above all a consolidation in the various European countries with a reduction in competitiveness”). Greater caution is expressed towards the tech sector (“in the face of high valuations”).

The weight of government bonds

The success of the latest BTP Valore issue confirmed the market’s interest in government bonds. Thomas Avolio Deputy, CEO and principal of Redfish Listing Partners, focuses in particular on three-year BTPs and corporate issues with high ratings, preferring short maturities to limit the risks of fluctuations. As for shares, optimism is expressed towards the banking sector, especially in the prospect of aggregations that would allow the generation of value, as well as for the profitability that is characterizing the sector, “which will translate into important dividends for shareholders”. Avolio also focuses on defense sector, given that growing tensions at a geopolitical level should further push spending on armaments. His view is also positive for the technology sector: “Although it has run a lot in recent months, it still has room to grow from a rate cut perspective.” A reasoning linked to the fact that innovative companies tend to rely more on debt, and therefore benefit from a low cost of money. Finally, on a dimensional level the number one of Redfish Listing Partners sees room for recovery for small caps, which trade at a discount compared to large companies.

Also David Coppini, investment manager of First Capital, underlines that, “compared to long-term bonds that are already affected by a significant monetary alignment, those with shorter maturities retain a potential for revaluation. We particularly prefer the three-year BTP, which still yields over 3%.” The assessment of the equity component is also in line with the other experts, with particular attention to technology stocks, “with rate cuts that would bring benefits to the capital structure, allowing refinancing at lower rates”. Lower rates also lead to greater liquidity on the market and this pushes Coppini to favor small caps over large ones, given that the former have been penalized in the last year by a lower availability of money in circulation. Finally, a look at the titles. “Our favorites are: Intred, Tps, Linbergh, CY4Gate and Ala,” she underlines.

As always, the recommendation is to consider each investment choice in light of careful financial planningwhich cannot ignore adequate diversification.