With the elections behind it, the road is all clear till May for the Italian stock market

14 March 2018
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It has all gone as expected. The Italian elections have come and gone and, despite bringing about no clear result, the Italian stock market has quickly got back to business as usual, all things considered, bouncing back straight away, without getting bogged down in the uncertainty that, against all hopes, the polls have delivered. But then, given the good economic climate, the rest should not cause major problems. Political risk will only become an excuse to sell if the economic situation becomes complicated, and that is not the case for now.

With the yield spread on Italian government bonds under no particular pressure and defended by the active efforts of the ECB, the picture on the whole is a positive one. The risk lies in the volatility of the market since early February, which can amplify fluctuations on a bad trading day, as buyers and sellers are never out in force together on the market as it is today. But ultimately, stock prices are still moving positively.

The only real risk factor would appear to be just how far the Trump administration is willing to go on protectionism.

The impression is that it is just a tactic by the US President, as in other cases, to gain concrete advantages, however Europe will have to tread carefully, as it has much more to lose from a tariff war than the USA. It could be said that it is just Trump’s style, as seen in the case of North Korea, where a more moderate approach ultimately emerged. He tackles hard and leaves counterparties reeling, but in the end they accept. In any case, it has to be remembered that confrontation at certain levels is in nobody’s interests.

That said, the Italian stock market is on the right course. These are important times for Italian banks, which should react quite well to upcoming amendments to EU regulations on the management of NPLs. We shall see. What is sure is that the demanding, near total recapitalisation of Credito Valtellinese has come substantially to a successful close, laying the groundwork for a new season of mergers and acquisitions.

A hot topic remains that of long-term individual savings plans (“PIR”), which continue to attract investment, but have to deal at the moment with the large number of SPACs now on the stock market, which our SME market cannot absorb and which are struggling to achieve business combinations. In general, however, with the political risk of the elections behind it, the Italian stock market has until May to pick up the pace, at which point it will be time to decide whether to “sell in May and go away”, as the old stock market saying goes.

By Massimo Trabattoni, Head of Italian Equities at Kairos, for the “Italian Times” column of AdvisorPrivate.

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