“2017 could not be as bad as we may think.” Speaking at Natixis’ annual investment symposium on 1 December 2016, DNCA Investments’ equity portfolio manager Isaac Chebar has hinted at investment opportunities for next year while presenting the DNCA Invest Value Europe fund (€665m of AUM as of end of October 2016).
Chebar highlighted financials. Over the last couple of months, European banks, representing 10.2% of the portfolio as of 31 October 2016, have been among the strategy’s main contributors.
About banks, Chebar said that buying “banks that have the back against the wall” remains an interesting investment because they cannot avoid a restructuring period. The DNCA Invest Europe Value fund holds financials such as Société Générale as well as Banca Popolare and Commerzbank.
According to Chebar, three main drivers should conduct European banks’ recovery : the falling bad debt charges, revenues revival and efficiency gains.
However, the DNCA’s portfolio manager highlighted capital is still an issue for the banking sector and that the coverage of bad loans remains insufficient.
Chebar argued the de-rating of European banks could last for some time. Also he does not foresee any bankruptcy occurring next year in the financial sector.
He believes markets will overcome political issues, such as the Italian referendum, like they did with the Brexit vote and the election of Donald Trump. Regarding the forthcoming French presidential election next Spring, Chebar observed that for the first time in a long while, the right-wing candidate – François Fillon – is backing the liberalisation of the French economy.
He said Italy, like France, needs to go forward for liberalising its economy through its referendum. Chebar added both countries would like to take a leaf out of Spain’s book as the Spanish economy is recovering.