In June the FTSE MIB index finally overcame the historic resistance at around 25,000 points that had lasted since before the Great Recession of 2007. This happened in a favourable macroeconomic context that sees a gradual reduction in Covid-19 cases in all the developed countries and therefore a relaxation of the restrictions on commercial enterprises, industries and private citizens.
While in the United States probably the peak of the recovery was already reached in the second quarter, economists expect that in Italy as in the rest of Europe, owing to the delay of some months in the vaccination campaign, the recovery will happen in the third quarter of this year. This leap in demand at the global level due to the strong recovery of investments and consumption, is causing a few problems as regards:
The issue of inflation is certainly in this period the main worry for investors who wonder how the Central Banks will react and above all whether this phenomenon is due to a temporary mismatch between demand and supply due to the very rapid, but not uniform, post-pandemic recovery or whether instead the new expansive fiscal policies will lead to a longer period of inflation compared to the last decade.
Coming back to the strong performance of the Italian market it is important to stress that it is again overperforming most of the other European indices. Once again what is exciting investors in favour of companies in our country is the PNRR recently approved by the European Commission. In the hands of the current government which, according to many entrepreneurs and managers with whom we discuss things directly, speaks a language much closer to that of businesses compared to the previous governments, the European subsidies are turning out to be a driving force for structural growth.
This renewed confidence in Italian businesses can be seen not only observing the performance of companies listed on the FTSE MIB, but also and above all looking at small- and mid-cap companies. It is above all here that recently most of the of overperformance has been seen, compared to both European peers and other FTSE MIB companies. In particular the AIM segment is experiencing a golden moment thanks to the entry of new investors, including foreign ones, who before instead kept well away from not very liquid stocks not covered much by the financial community; this interest probably arises also thanks to the low starting multiples with which companies are listed on the AIM, which therefore offer a large upside in rerating periods.
Confirming this trend there is also the significant number – much higher than the historical average – of public offers regarding in fact Italian small- and mid-caps. This means that beyond the often contingent cash flows, there is a real appetite for assets of the Italian real economy, in particular for industrial names that constitute the productive fabric of the country.
Analysing instead the sectoral trends, we can see from the recent performance of the different segments that the market is still undecided with regard to the direction to take. This indecision is based above all on the expectations of inflation and on the probable countermeasures of the Central Banks. While on the one hand in fact a rebound of the growth and quality component (we are talking therefore about tech, healthcare and consumer goods) has finally been seen, after a strong period of rotation towards cyclical stocks that began at the end of 2020, on the other hand sectors such as auto and travel & leisure, more closely linked to the subject of reopening, also continue to do well.
Comment by Massimo Trabattoni, Head of Italian Equity.