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Monti Win Likely to Boost Italian Bonds: Coutts

Wednesday, 30 Jan 2013 | 12:00 AM ET
Low Political Risk in Italy: Coutts
Norman Villamin, chief investment officer for Europe at Coutts, says Italy's political risks have diminished as Italians head to the polls in February.

Italy's technocrat prime minister, Mario Monti, is likely to lead the country again after the national election in February, Coutts' Chief Investment Officer Norman Villamin told CNBC on Monday.

Villamin said investors should consider purchasing Italian sovereign and corporate bonds, as polls pointing to a Monti victory mean political risk is less than once feared, while Italian economic fundamentals are "actually quite strong".

"We have been constructive on Italy for several months," Villamin told CNBC Europe's "Closing Bell".

"A lot of people like to focus on high debt-to-GDP ratio, but when you look at the primary surplus in Italy, it is quite strong. We don't think the risks in Italy are as meaningful as well see in other places in the periphery in Europe."

Monti has led Italy as an unelected prime minister for the last year, and is credited with pushing through unpopular austerity and structural reform measures. His announcement last month that he will run in Italy's national election on February 24-25 as the leader of a centrist coalition has boosted investor confidence.

During Monti's tenure, Italy's once sky-high borrowing costs have plummeted. At a bond auction on Monday, yields on 2-year debt fell once again to 1.434 percent from 1.884 percent at an auction in December.

Villamin said investors looking to gain exposure to Italian debt should "take a pause", to see if yields rise again on concerns about implementing further reform measures.

"We think Italy offers good fundamental value if yields backup," he said.

In a report on Monday, HSBC's Global Head of Equity Strategy Garry Evans echoed Villamin's views on the Italian election, saying it would likely result in a "sensible coalition".

Earlier this month, Italy's finance minister, Vittorio Grilli, told CNBC that the drop in Italian bond yields was justified.

"I don't think anything is wrong… We had to go through a very tough budget to achieve a major objective that we had, which is a balanced budget by 2013," Grilli said.

Speaking at last week's annual World Economic Forum in Davos, Switzerland, Monti said Italy had regained the markets' confidence.

"I can feel that Italy has gained back respect and confidence in its ability to bounce back. I see a very concrete interest of business and investors for the opportunities my country can offer for economic growth and innovation," said Monti.

(Read More: Italy's Monte Paschi Finds No Evidence of Bribes)

However, the Italian economy remains mired in recession, with unemployment and the debt-to-GDP ratio still high. In a global asset report in November, HSBC forecast Italy's debt-to-GDP ratio will rise slightly to 127 percent in 2013, while the economy will shrink by 1.1 percent.

Doubts about Italy's banking sector have also been flagged by a crisis at Monte dei Paschi bank, which last week revealed losses of up to 720 million euros ($971 million) from derivatives trades made between 2006 and 2009.

- By CNBC's Katy Barnato

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