Amundi Asset Sees Hot Spot in Italian and French Banking Shares

(Bloomberg) -- It’s time to buy financial stocks in the heart of continental Europe, with France’s election outcome signaling political stability while Italy starts to implement reforms.

That’s the view of Nicholas Melhuish, the head of global equities at Amundi Asset Management. Based in London, he manages about $1.5 billion in equities, including the Amundi Equity Global Concentrated fund, which has about $450 million in assets. The fund has returned 9.4 percent this year, better than 71 percent of more than 3,500 peer funds.

French, Italian Banks

“The outstanding cyclical sector in Europe is financials, which was a very unfashionable thing to say 12 months ago, or 12 weeks ago,” the 48-year old fund manager said in an interview Wednesday in Dubai. Some of Italy’s biggest banks are going through a restructuring process, at the same time broader reforms are “gradually beginning to happen.” The industrial base in the north should benefit from an improvement in the economy in the continent, he said. “The risk-reward is quite attractive.”

France, where Amundi Asset Management is based, could now be compared with Germany in the 1990s, when low growth combined with a rigid labor market gave the impression it was the sick man of Europe, he said. After Emmanuel Macron’s election, investors should expect more political stability, opening the way for reforms. “There is a real opportunity now for France to be an engine to Europe. And politically it is important to bring France and Germany together,” Melhuish said.

U.S. Healthcare

Melhuish sees health-care stocks looking “extraordinarily cheap” at the moment due to policy uncertainty under President Donald Trump’s administration. “People don’t know what is going to happen in terms of the structure of the industry and, most importantly, what is going to happen in terms of drug prices. For the first time in a decade or so, if you look at the cheapest stocks in the healthcare universe, free cash flow to yield is actually one of the most attractive of all factors.”

Emerging Markets

There are “some pockets of value around the world,” although the risk-reward offered in such economies still doesn’t pay, said Melhuish, who holds just two stocks from outside the developed economies in the concentrated fund.

“From a bottom-up perspective, every time that we looked at an emerging market stock that we thought was interesting, we tended to find something in developed markets that was a bit less risky and was more interesting.” Last year, for example, Melhuish chose Italian banking stocks over Chinese lenders.

Melhuish declined to name individual stocks in the interview, citing company compliance rules.

To contact the reporters on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net, Justin Carrigan in London at jcarrigan@bloomberg.net, Dana El Baltaji in Dubai at delbaltaji@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Todd White