Italian Markets and Equities: what are the leading sectors for 2025?

28 January 2025
Italian Times

In January, the main global equity indices showed generally positive performance: the Ftse Mib gained 6.3%, the Stoxx Europe 600 rose by 5.1%, the S&P 600 advanced by 3.4%, and the Nasdaq increased by 2.4%, all in local currency terms (total return).

The year-end reporting season is approaching, and companies listed in the Italian equity indices are preparing to present their fourth-quarter 2024 results and provide guidance for 2025. The strategic indications from these companies will be crucial in assessing the resilience of the economy and future expectations.

As the new year begins, investors’ attention is focused primarily on the financial sector, which has a significant weight on the Ftse Mib’s performance. Two key aspects will need monitoring: the evolution of net interest margins in a context of declining interest rates—albeit at a slower pace compared to 2024—and potential consolidation scenarios, with M&A activity energizing the sector. Noteworthy examples include UniCredit’s attempts to acquire Banco BPM in Italy and Commerzbank in Germany, as well as Monte dei Paschi’s recent bid for Mediobanca.

The automotive sector, particularly in Europe, faces a challenging period due to substantial investments required to meet electric vehicle production targets, essential for complying with European CO2 emission reduction regulations. However, demand for electric vehicles remains weak due to a lack of adequate incentives. Investors will closely watch the evolution of this dynamic and the potential for a regulatory deadline extension.

In the luxury sector, analysts are closely monitoring the recovery of the Chinese market, which has been a drag in recent years, and the possible normalization of U.S. consumer spending following a slowdown observed in the months leading up to the presidential elections. Additionally, the focus will be on sales volume trends, considering that in recent years, growth has been primarily driven by price increases. With inflation declining, a return to volume-driven growth could become a key element for 2025.

The inauguration of President Trump in the White House could provide a boost to the defense sector, fueled by an anticipated increase in military spending under the new administration. While the proposed target of 5% of GDP for defense spending seems more provocative—given that many NATO countries struggle to meet the 2% threshold—the sector could still benefit from heightened attention to such policies. However, caution is expected in the sector, particularly given Trump’s role as a mediator in geopolitical crises such as those in Gaza and Ukraine. Simultaneously, the oil services sector could benefit from reduced emphasis on “green” policies, which appear to have a lower priority on the presidential agenda, potentially at the expense of renewable energy.

Small and mid-cap stocks underperformed large-cap companies in 2024. However, 2025 could mark a turning point for two main reasons: improved macroeconomic data in a context of declining interest rates and renewed interest in this asset class, particularly driven by investment flows toward U.S. small caps and, by extension, European small caps. These movements could be supported by policies aimed at boosting the U.S. domestic economy.

 

Commentary by Massimo Trabattoni, Head of Italian Equity

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