The coronavirus is changing not only people’s social habits, but also their investment habits. As an expert in the industry, do you think that investment habits will change in our country as well?
I think we will see a sharp segmentation of sectors and businesses after the pandemic. Many companies will go out of business, others will be bought, others will have to restructure and eliminate branches of secondary or complementary businesses with large-scale redundancies and workforce reductions.
The most successful companies will be those that are resilient in terms of liquidity reserves, low debt-to-turnover ratios and lean management in the main business.
Investment habits in Italy will test the levels of portfolio risk profiles and the psychological and emotional approach of investors with respect to their savings.
Consequently risk-averse investors will opt for controlled-risk government bonds like UK bonds, US Treasury bonds, German and Japanese bonds, albeit at negative rates.
Risk-prone investors will focus instead on businesses with excellent cash reserves, low debt levels compared to equity, excellent cash flow generation and with a high technology-production profile.
The habit of historically preferring the banking and insurance sector in Europe and the US will be severely limited by post-pandemic damage, the low or negative rates that will affect the credit sector and banks’ profits.
The most serious economic impacts of the COVID-19 crisis will be seen in countries with high levels of private debt (households and businesses). Local governments are injecting new money to deal with a possible stagnation of markets, effectively “drugging” the economy. Given this situation, how do you view a return to the real economy?
I fear that it is unlikely that the monetary stimulus packages in the West and Asia will be able to rebalance the dynamics of the so-called real economy.
As we have learned about 1/4 of the QE will be used to finance welfare projects in order to alleviate the agony of the weaker social classes. 3/4 of the QE will go to (re)finance the financial system, and the history of the last 10 years tells us that $2.1 of QE is not enough to generate $1 of global GDP growth.
So in the future the real economy will be spoiled by the huge mass of digital cash created by central banks, which will continue to buy public and corporate securities and fill their balance sheets with assets.
For there to be inflation that greatly helps the real economy by raising the prices of goods and services, the money of the QE must reach Main Street, that is to say the consumers of essential goods, and not the elites through the system banks.
In my view the real economy will see large gaps between the countries that manage and control their debt (e.g. Germany and the Scandinavian countries) and the heavily indebted countries with low infrastructure technology like the countries of southern Europe.
The US must take into account that the dollar is the currency of reference of the manufacturing and commercial world, and therefore, even with its combined indebtedness (government, companies and households), it continues to play the role of global supplier of the system currency.
Microfinance is a tool that invests in the real economy and has proven – even in this historical moment – to be a resilient asset class disconnected from global financial turbulence. How is this asset class seen by investors and what are its prospects?
Microcredit focuses on the business relationship between credit and small or medium-sized enterprises.
The ethical aspect and characteristic of microcredit lies precisely in helping small businesses to flourish and stimulating the growth of the middle class, which has been abandoned by global monetary policies notwithstanding its critical role in the growth of national GDP.
When we move from microcredit to small- and medium-sized enterprises to Microfinance, we’re engaging with all those investors who are active in the business of developing the entrepreneurial ideas of microenterprises.
The investor in bonds or shares of issues related to the microcredit business focuses on the resilience of the business in every market context, and therefore on the lack of correlation with other traditional asset classes, on the very strong diversification of the loans, on the rigid collateralisation of micro loans based not only on the guarantee value but also on the generation of cash flow by the debtor customer and his or her micro enterprise.
Looking forward, the investor obviously assesses a transition from traditional macroeconomic risks on traditional financial investments to positions in microfinance instruments (bonds or shares) linked to non-Western countries that have accommodating, favourable jurisdictional policies with respect to the business of microfinance, and therefore to the investors themselves who demand the highest solvency and security of the investment.
Like alternative asset classes with a low risk and duration, they offer interesting, attractive returns.
The illiquid nature of the bond issues and very low volatility provide sensitive benchmarks to stabilise financial portfolios with a view to diversification into alternative assets.
This emergency has changed the relationship with customers, maybe permanently, shifting “physical” and personal relationships to technological and digital channels. This is a forced change that could also affect the frequency and method – and even the perception – of the services offered by financial intermediaries. What steps are you taking to adjust?
The lockdown gave companies a chance to test the engagement level and effectiveness of teleworking and techno-digital business relationships.
We are witnessing an increase in smart devices, additional internet bandwidth and more efficient peripheral storage systems.
I believe that this phenomenon is a trend for the future and both companies and professional firms will choose to encourage digital relations.
Virgilius Wealth, especially in its Business Angel venture capital business, has been leveraging and investing extensively in long-distance business relationships at a steady and rising rate, with 4-5 video conferences per day per employee.
We consider this relationship channel to be very effective, cost-effective and fully interactive.
The infinite applications of technology are attracting billions of dollars of investment, and in the coming years they will revolutionise the technological world as we know it. Can blockchain change the financial world of the future?
Blockchain is a technology that was born in a very complex period for financial markets. The first document dealing with Bitcoin (the famous white paper by the never identified founder Satoshi Nakamoto) was published on 31 October 2018 in the midst of a financial crisis, and this was not a random event.
This technology aims to build the Internet of VALUE, that is, to allow a correct and incontrovertible validation of data and information travelling on the Internet. These characteristics are allowing the development of real innovations that go beyond cryptocurrencies, now well known, which include a series of innovative technological protocols and cryptographic infrastructures that are often even more efficient than traditional financial markets and the institutions that have populated them for decades. For example, the latest evolution based on blockchain and crypto assets is DeFi – Decentralised Finance – which already today allows access to capital lending platforms or markets for synthetic derivative instruments that are totally governed by smart contracts and based on cryptographic protocols and underlying assets. So the answer is certainly yes, blockchain is revolutionising the world of finance.
Technology can also modernise microfinance, an instrument that has proven flexible and resilient to crises over time. What do you think of this evolution?
Not only do I see it as positive, but Virgilius Wealth is working actively in this direction.
Every day our internal division dedicated to analysing cryptographic markets and assets is in contact with institutional investors and new investment funds who seek out and ask us for help in applying our experience and skills related to structured finance with underlying cryptographic assets. I really think, with a constructive and proactive spirit, that microcredit is no less interesting. For example, why not develop a smart contract that can govern and coordinate the lending policies of a company like yours, or a microcredit activity that could be accompanied by the use of platforms based on cryptographic protocols allowing the company to collect money from Millennial investors who hold Bitcoin and Ethereum, and subsequently “swap them cryptographically” in dollars or tethers and use them for microcredit activities?
A challenge that we’d enjoy taking on.
Vito Fernando D’Onghia
Born in 1961 in Salento but now a resident of Padua, since 1988 he has enjoyed success in the consulting and asset management sectors, occupying managerial roles in financial groups of international importance.
For years he has coordinated more than 150 professionals, managing assets for a total value of €2.8 billion.
An economic analysis and research company specialising in Alternative Assets able to support private persons, family offices, corporations and institutions.