Because Italy cannot afford populist measures
The Italian market is going through an uncertain moment, mainly dictated by the increase in energy prices, the policies of the European Central Bank to respond to inflation, the change of government and global geopolitical risks.
The main international indices are not showing signs of recovery, with the FTSE MIB showing around -20% since the beginning of the year. In the last month, the travel sector had the best performances, where the positive trend of post-Covid recovery continues with regard to tourism and a recovery is beginning to be seen also with regard to corporate travel, the banking sector where the interest margin it benefits from the rise in interest rates and that of the media, while the real estate sectors have suffered greatly, probably also due to the increase in the cost of mortgages and utilities, which instead pay for the energy crisis and fears over bill payments.
In recent weeks, there is great expectation for the results of the companies in the third quarter: it will be interesting to understand if indeed, as expected, there has been a drop in consumer spending linked to the increase in energy costs and food, which is reflected in the results of the companies. If on the one hand this would highlight the beginning of a recessionary period, on the other hand it would finally allow analysts to start revising their estimates for the end of 2022 and especially 2023, aligning them with the new and now inevitable macroeconomic scenario. At the moment, in fact, the market consensus as regards the estimates of profits of listed companies in Italy for 2023, compared to the previous year, foresees only a decrease of -2.5% in aggregate, with a rebound of + 10% in the 2024. Forecasts that seem to be too optimistic.
As for the government scenario, Giorgia Meloni, the new Prime Minister, has undertaken to follow the fiscal path traced by Mario Draghi, as demonstrated above all by the announcement that there will be no budget variances, thus reassuring the markets. The reaction of the markets to populist expansionary maneuvers has been clear in England in recent weeks with reference to the further widening of the deficit in a context of inflation and an economic slowdown of rate hikes. At this juncture for a country like Italy, already committed to managing its growing public debt, a similar maneuver could result in a loss of confidence on the part of foreign investors with consequent stress on the BTP and drainage of foreign capital from the Italian market.
Another crucial factor for Italy, which is one of the countries most affected by the energy crisis due to its large reliance on Russian gas, is the achievement of an agreement at European level to finance a Community tax intervention to support consumers and businesses. In fact, Italy, unlike Germany, which has the resources to issue a 200 billion euro plan to support families and businesses, cannot afford to make additional debt to subsidize bills.
In a period like this it is more important than ever to invest selectively and with a medium-long term time horizon. There are numerous Italian companies with solid fundamentals that are underpriced and that could represent an investment opportunity, particularly in sectors that generally do not experience large variations in results during a recession.
* Head of Italian Equity of Kairos
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