Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Footonomics by Jakobsen & Garnry #1
Peter Garnry
Chief Investment Strategist
Summary: Today's Footonomics is about Italy vs Turkey which are playing the opening match tonight in Rome on the old Olympic stadium. Italy wins on misery index, but in real life football one should never count out Turkey. On equities the match is between Enel and QNB Finansbank, which the Italian utility wins 2-1 on better equity fundamentals. Steen's and Peter's prediction is that Azzurri wins 3-1.
Match: Italy vs Turkey
Macro: The Italian job vs. Turkish Delight
- On the Misery Index it is an Italian win (CPI + Unemployment + Budget deficit) Italy +21 vs. Turkey 33, but both pretty miserable…
- Turkey is ranked 12th in the world on GDP (PPP) vs. Italy 11th, let us call that a draw.
- Italy has the biggest amount of draws at 16 in Championship and according to The Analyst AI based statistical prediction Italy has a 7.6% chance of winning tournament vs. Turkeys 0.4% a big win for Italy in this category.
- Best football quotes: Italy: -Andre Pirlo: “Manager Roy Hodgson mispronounced my name. He called me “Pirla” (A term used in Milan dialect which roughly translate to “dickhead”) perhaps understanding my true nature more than any other manager)) vs. Turkey's Coach Faith Terim: “Statistics are like miniskirts because they don’t show you anything” – A draw in my book…
- (courtesy of Althea on fixed income) The question is whether Turkey will be capable of breaking Italy’s strong defense, the bond market, with BTPS being oversubscribed at each auction as they offer the highest yield in the euro bloc. Do not expect Italy to move forward from their strong defense, which has not conceded a goal in eight straight games. Turkey needs to confide in its aggressive captain, Yilmaz, to score a goal and attract demand for the country’s paper yielding more than 17%.
As this is the first Footonomics, we will briefly describe our take on equities during the tournament. We have selected the largest publicly listed company on market capitalization for each country. Each company is scored on growth, valuation, and return on equity, and the combined fundamentals will decide the outcome of the match in equities. See the whole list of companies below. One thing to note is that the list is typical European dominated by boring value stocks. The only countries/companies that smell of the future and growth are ASML (Netherlands), Allegro.eu (Poland), and LVMH (France).
Equities: Enel vs QNB Finansbank
- Enel wins 2-1 over QNB Finansbank, as the Italian utility is cheaper on valuation (13.5 vs 56.3 on 24-month forward P/E ratio) and has a better return on equity (16.0% vs 14.0%). QNB Finansbank scores on a slightly higher expected growth rate (2.9% vs 2.6%).
- Enel is like so many other European utilities doing a green transition away from the old oil and gas business. In 2019 more than half of the group’s total energy generation came from renewable energy sources.
- QNB Finansbank is operating under very difficult monetary and fiscal policies combined with the region’s highest inflation. However, the 14.9% return on equity is quite impressive when compared to many European bank.
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