Italian share prices joined in a cross-Europe rally this morning, in apparent defiance of crisis measures to control the spread of the coronavirus.
As the worst-hit major European country, Italy initially imposed travel restrictions on the worst-hit areas, such as the northern region of Lombardy, whose capital is Milan.
But a climbing death toll, rising on Monday from 366 to 463, prompted Prime Minister Giuseppe Conte to extend the emergency measures across the country.
Share price wipe-out
Travel is restricted, schools and colleges are closed and nightlife has been put on hold. Public meetings have been banned.
However, the main stock index, the FTSE MIB, bounced this morning in line with the performance of other benchmarks across Europe. It was 3.16% higher at 19,060.23.
Trade Italy 40 - IT40 CFD
Shares were higher also in London, where the FTSE 100 index was 3.03% higher at 6,146.42, while the FTSE 250, more reflective of the domestic UK economy, was 2.93% higher at 18,062.08.
The first day of the week, by contrast, saw a wipe-out triggered by the virus and its economic implications an probably made worse by concerns over the possible failure of trade talks between the European Union and the UK. In the biggest falls since the 2008 financial crisis, billions was wiped off share values.
Journalists dubbed the day “Black Monday”, an label attached to October 19 1987, when prices tumbled in most markets. By the following Friday, the FTSE 100 had lost a quarter of its value.
Italy’s struggle with low growth
The question now is whether today’s recovery can be sustained. Pessimists may suggest this is a “dead-cat bounce”, an expression drawn from the fact that even a cat falling from a great height will bounce when it hits the ground. A rise in prices before subsequent further falls can be attributed to “bear closing”, the purchase by market pessimists of the stocks need to fill out short positions.
A more cheerful interpretation would be that markets tend to over-react to events such as the coronavirus and then partially correct afterwards. In addition, those with strong nerves may treat steep price falls as a bargain hunting opportunity.
The FTSE MIB contains 40 stocks, including renowned names such as financial group Mediobanca, carmaker Fiat Chrysler and Telecom Italia. If, as some suggest, stock prices are a “leading indicator”, pointing the way to future economic performance, then the rally could be good news for Italy.
The country, a member of the Group of Seven leading nations, could certainly do with some. It has high levels of economic inactivity and its economy, as of 2017, was barely any larger than when it joined the euro, in 1999.
In February last year, the International Monetary Fund (IMF) noted: “This 2018 Article IV Consultation [the health checks carried out by the IMF] highlights Italy’s struggle with low economic growth and shows that poor social outcomes and structural weaknesses are at the core of this economic underperformance.”