'Don’t overestimate' Italy risk, pleads Amundi’s Perrier

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Dominic O’Neill
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Italy flows up despite populists’ impact on bond yields; warns of peak debt across the West

The chief executive of Europe’s largest asset manager has launched a stringent defence of investment in its Italian business, despite increased worry about populist economic policy in Rome. Amundi’s shares plummeted 14% in mid-to-late May as the Northern League and Five Star Movement formed a coalition. The stock then underperformed peers such as Ashmore and Schroders but rebounded after promising second quarter results on Thursday.

Amundi’s Yves Perrier admits wider Italian worries – which have pushed up spreads on Italian government debt in early August – will continue until parliament votes on the budget in October. Pronouncements in recent days have suggested that the Northern League might continue to push for the introduction of a flat-rate tax at 15%, with the Five Star Movement having advocated a minimum €800 monthly salary. “This would create a huge deficit,” Perrier notes.

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Yves Perrier, Amundi

The more likely scenario, according to Perrier, is still that the government will forge a more orthodox path, even if it is not perfect and some uncertainty continues. “On the economic side they have to be realistic,” says Perrier, drawing a contrast to the direction of immigration policy. “We shouldn’t underestimate the Italian political situation but at the same time don’t overestimate it.”

In large part due to the client reach it offered in Italy, Perrier led Amundi into a €3.5 billion purchase of Italian peer Pioneer in late 2016. The acquisition brought Amundi’s assets under management up by more than €200 billion to €1.4 trillion and came with a distribution agreement involving Italy’s biggest bank, UniCredit, which was selling Pioneer to raise capital.

It also fitted with the group strategy of Amundi’s majority owner, Crédit Agricole, which deems Italy a second domestic market after France.

Investors in Amundi have fretted about the impact of Italy’s populists on its assets under management and revenues, as Italian clients become more risk adverse and as its fund performance suffers as Italian assets are hit, according to Exane BNP Paribas analyst Arnaud Giblat.

“You definitely see a high correlation between Amundi and Italian asset managers,” says Giblat. “Clearly there’s a lot of investor concern about the exposure to Italy.”

On Thursday, however, Amundi announced net inflows of €2.5 billion in Italy in the second quarter, albeit down from €4.1 billion in the first quarter and €3.6 billion in the second quarter last year. Its Italian assets under management were flat in May. If it did not see bigger inflows that month it was also due to public holidays and the deferred impact of the market correction across Europe in February, according to Perrier.

Despite its large Italian distribution, Perrier says Amundi’s funds went into Italy’s election in March underweight Italian assets: “There’s no specific Italian effect on us,” he says.

“We agreed the Pioneer deal after the late 2016 constitutional referendum was lost by [the then] prime minister Matteo Renzi. We knew that the political situation in Italy – 65 governments since the Second World War – is not as stable as France’s Fifth Republic. This is inherent to Italy, but it is an entrepreneurial nation.

“We have to look at the fundamentals. The Italian economy has had growth for two years, and it’s a competitive economy. The trade surplus is €50 billion – the fifth biggest in the world. The budget deficit is under 2% and there is a primary surplus. That’s better than France. It’s a problem of public debt – 130% of GDP. But that has to be mitigated by the fact that two thirds of it is in the hands of Italian savers.”

Italy-graph-495pxIn 2018 as a whole, Amundi’s share price has fallen by a similar amount to other European listed asset managers such as Ashmore and Schroders, about 12%, and less than DWS (18% since its listing in March) and Italy’s Anima (23%).

Amundi’s 2020 strategy announced in February modelled its sensitivity to a 10% shift in equity values of up to €30 billion in assets under management and up to €85 million in revenues, while a 100bps shift in bond yields would impact assets under management by up to €35 billion and revenues by up to €40 million. 

“We are confident to deliver our figures in any market situation except a very adverse situation,” says Perrier. “I don’t anticipate a major shift by central banks. There will be an increase in rates, but prudently.” He admits there might be a geopolitical wildcard, though firstly cites risks in the Middle East, Brexit and trade wars.

“Many investors consider that at present all asset classes are high due to monetary policy,” says Perrier. “They should appreciate the business model and our diversification between asset classes, client segments, styles of investment and geography.”

He adds: “When I look at the global situation you have reasons to be optimistic and we have some fears. Growth in the world is everywhere. Except Venezuela, every country grew in 2017. I think it will continue due to the impact of new technology and other factors, including emerging market growth.

“The risk is that debt, especially in the western world, has continued to increase since the global financial crisis. Public and private debt to GDP is now about 240%, which is 40 percentage points higher than in 2007. In the 1980s, it was 100%. Part of growth we have seen has been financed by debt due to the very accommodative policy of central banks. This will not cause a problem if growth is more rapid but if growth is less rapid it will.”