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Carlo Pelanda: 2015-3-0H Edition

2015-3-0

3/2015

A sexier eurozone for investors

The devaluation of the euro against most global currencies, (created by the ECB quantitative easing), plus the depression of asset prices (particularly in Southern European nations hit by a prolonged and deep recession) means that the Eurozone is becoming very appealing to non-euro investors because it offers a “double discount” opportunity. This means that investors with liquidity in dollars, pounds, etc., can find an exceptional chance of profit by ‘raiding’ Europe. But how long will this window of opportunity be open? The euro might well fall against the dollar – perhaps as low as €0.80 (it was around €1.35 in June 2014). However, such a heavy devaluation is unlikely to happen and even if it does, it’s unlikely to last too long, due to corporate America starting to suffer from the competition of cheap euro goods and Germany’s opposition to the risk of imported inflation. However, a prolonged and consistent devaluation of the euro is the only real leverage that the ECB has to transform the deflationary trend in the Eurozone. This is because the transmission of monetary stimuli to the “real economy” in Europe finds more obstacles than in America, because banks are inefficient and still affected by balance sheet problems, the rigidity of the labor market, and heavy welfare state models that are not market-friendly. Therefore the export market seems to be the only area that can produce growth. However, exportled growth without a strong recovery of the national domestic markets will create a very slow recovery. Therefore the value of the euro will remain low for at least three
years – probably at around €1.07 against the dollar – with a tendency to go up at the beginning of 2016. If this happens, the peak of devaluation might occur in the spring and summer 2015, where the euro might reach a value of between €0.95 and €1 for one dollar. If some unpredictable global event happens (such as a sudden increase in the oil price, open conflicts, or ungoverned deflation of the financial bubble) this scenario might change substantially. But the probability of such problems in the short to middle term is currently low. Therefore, under conditions of decent global stability, this window of maximum discount will remain open for few months. Many important investors are already transferring sensitive amounts of money to the acquisitions of euro-assets. Plus, in the investment sector, there is a growing search for what and where to buy in the Eurozone with a view to reselling later for a high profit. This is not an investment advice column but I can give examples of attractive investment areas which have not yet been discovered because of negative prejudice or simple lack of information. For example, the Italian internationalized small manufacturing companies are real hidden treasures because of their unique levels of innovation and technological consistency (Northern Italy is a manufacturing power second only to Germany in Europe). Traditionally, these companies are led by a family of owners not inclined to open the equity and until recently these were mostly funded through ordinary credit
by commercial banks. However, now, because of the local credit crunch, the owning families have to accept investors in order to find capital for sustaining the growth of their companies. Thousands of potential high growth small companies are therefore now on the market, which is a huge opportunity for Private Equity and/or Debt Funds investors.
However, probably the absolute best business opportunity in Italy is its art patrimony: in this sector there is a triple discount opportunity. Low euro, low prices and the fact that many masterpieces of Italian ancient and contemporary art are not properly valued by the international market. For example, De Chirico or Dalla Vecchia (the latter a sort of Venetian Caravaggio), are almost totally unknown outside the circle of art specialists. They will soon be better known because the need for money is pushing the Italians to show (and sell) artworks that they previously exchanged only in the national market.
The same will happen to the highest quality wines: small sophisticated Italian producers, who make few bottles, did not previously care to export and to advertise them because local demand was enough. But now local demand is lower,, they need to look for investors and internationalization. Similarly, in the area of élite beer (though less than at the art and industrial level in Italy), it will not be difficult to find an unknown investment paradise meaning that in Austria, Slovenia, Portugal, Spain and Greece, there will be similar opportunities. Enjoy!

(c) 2015 Carlo Pelanda
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(c) 1999 Carlo Pelanda
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