Trassinelli (Dnca): “The time for European tech stocks has come”

Trassinelli (Dnca): “The time for European tech stocks has come”


After the strong increases in 2023, what awaits World stock exchanges? Try to provide the answer Enrico Trassinellicountry head of Dnca Finance Italy.

What is the outlook for the markets this year and where do you recommend aiming?

“On a macro level we are reassured by the end of the central banks’ rate increases. Some segments of the market, such as the Magnificent 7 or stocks linked to artificial intelligence, have already celebrated, others have not yet. Since when investing in shares it is necessary ensure double-digit returns to compensate for the risks taken, it is necessary to find asset classes where there is the possibility of achieving this objective. For liquidity reasons we limit ourselves to countries. Well, there are two investment areas that we have identified: first of all, European growth equities. Many leading stocks in leading sectors have reasonable valuations and are far from the excesses of the Big 7, despite the presence of growing profits, margins and revenues. In particular in Northern Europe, an investment area characterized by stability politics, healthy public finances and a high level of competitiveness, where with careful selection we can find excellent companies, active in innovative sectors and at the center of major transitions. An area precisely without the excesses of the Nasdaq, where the selection of growth stocks can give a lot of satisfaction. Again with a view to finding sectors of the stock market with still room to perform, the segment of European mid-small cap shares seems very promising to us. In the scenario of an economic recovery and an interest rate cut, small-mid caps could once again outperform the market. Furthermore, thanks to increased visibility, falling interest rates and attractive valuations, we believe that a large number of small-mid caps will be subject to M&A in 2024. Not to mention that they are currently listed, at least in Europe, at a discount compared to large caps which is at a 15-year high.”

Enrico Trassinelli, country head of Dnca Finance Italia

Is volatility destined to remain low?

“No, we believe that the year 2024 will not fail to bring episodes of volatility. To reduce its impact on portfolios, we believe it may be a good idea to consider European equity strategies focused on stability and dividend growth. Strategies that offer a balanced portfolio between stocks with a history of stable dividends and growth stocks on which to focus on improving the payout over time. Let’s not forget that dividends historically represent, already over a five-year time horizon, around 60% of the overall performance of an investment European equity”.

One-year performance of the Stoxx Europe 600 index

One-year performance of the Stoxx Europe 600 index

What do you think about bond investing?

“Today, bonds offer attractive returns in absolute terms compared to just a few years ago. But there are risk factors that we cannot ignore. Inflation presents upward risks driven by structural factors such as the urgency of energy transition and the ever-increasing proportion of highly paid specialized workers in Western countries, due to the repatriation of strategic industries. This aspect could generate wage inflation. The market currently still underestimates the resurgence of inflation and the rates, especially in the long term, could surprise on the upside again. On the other hand, already at the beginning of the year, the German and American ten-year bonds have seen their yields rise. Furthermore, given that Western governments will have to issue around 20% more debt in 2024 , we risk seeing strong competition to issue at rates more attractive to investors. Not only that: the bond market is now devoid of the large buyers of a few years ago, primarily central banks, but also many sovereign funds. The main curves are still inverted and central bankers are still uncertain about the future path of official rates. As if that wasn’t enough, the bond market was very euphoric in the last two months of 2023, already incorporating five cuts into prices, while central banks are appearing much more cautious. It is therefore clear that we believe bond strategies that actively manage the risk of both inflation and interest rate surprises make sense. At the same time, as mentioned, our managers want to take advantage of the attractive yields to maturity accruing after 2022. The bond strategy that we believe to be successful is therefore a combination of well-remunerated yields to maturity (senior debt, European subordinated debt and emerging currency bonds forte are our favorite bets) and positions for managing interest rate risk and the risk of increased inflation”.



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