The ability to earn a return without increasing exposure to stocks too much. This is the balance that seems to orient Italian investors towards bonds (Bonds and also BTPs). In the first edition of the CAWS Breakfast on Wall Street Barometer, 42% would choose bonds if they had to invest in just one category of instruments in the next three months. Shares collect 32% of preferences, while liquidity and monetary instruments stop at 15%.
Why are Bonds and BTPs preferred to shares in this period?
More interesting returns, with attention to rates
Investors are trying to keep the allocation largely unchanged, while showing greater interest in bonds than stocks.
The choice towards medium-long term investments, obviously, is influenced by the economic-financial context. On 10 September the European Central Bank increased the three official rates by 25 basis points, bringing the deposit rate to 2.50%, with effect from 16 September. In the same decision, the ECB referred to the inflationary pressures generated by the conflict in the Middle East, without committing to a pre-established path for subsequent moves.
For those who buy bonds, the level of rates has two effects. Higher market returns can offer more attractive entry conditions. A further increase may, however, cause the price of fixed rate securities already purchased to fall, especially those with long maturities. The search for yield therefore also requires a choice on the duration of the investment and the possibility of maintaining the security until repayment.
Fixed rate bonds allow contractual flows to be known in advance and this predictability can be useful for those who want to plan income and maturities.
What are the risks to investments?
The geopolitical situation is the main risk for 27% of respondents. This is followed by high public debt indicated by 17%, rising inflation by 16%, and economic recession by 15%. Confidence in the markets stops at 48 points out of 100 and risk appetite at 46.
These are concerns that find real confirmation in current economic events. According to Eurostat data (published on October 16) inflation in the euro area rose to 3.8% in September, from 3.2% in August. Energy contributed 1.71 percentage points to the overall rate. In Italy, inflation measured with the European harmonized index reached 4.2%. What does it mean?
For the saver this means that the nominal return must be distinguished from the result in terms of purchasing power. A coupon does not automatically protect against price increases. What matters is the actual return on purchase, taxes, costs and inflation over the life of the investment.
The concern about public debts also introduces a distinction. Choosing bonds means lending money to an issuer, whose solidity remains central. Government bonds and corporate bonds can have very different risks, even when they offer similar coupons.
Where they will invest in the next 12 months
If bonds gather more preferences in the three-month horizon, looking at the next twelve months, the focus on equity themes is on technology. Artificial intelligence is the sector with the best prospects for 24.7% of those interviewed, followed by cybersecurity with 19.9%. Together they collect 44.6% of the responses.
This is followed by energy, indicated by 12.5%, robotics and automation, by 11.8%, and semiconductors, by 10.9%. Further away are infrastructure at 5%, biotech at 4.4%, defense and aerospace at 4.1% and fintech at 0.9%. The remaining 5.7% choose other themes.
Two out of three interviewees therefore identify the best stock prospects in sectors linked to technological transformation.
