Italy’s politics are in turmoil, and it would be extraordinary were the stock market to have escaped the fall-out.
This morning, the key FTSE MIB Borsa Italiana index was down again, losing 0.36% in early trading. A month ago, on 22 July, it stood at 21,735.70.
Italian debt dropped by investors
Matteo Salvini, deputy premier and head of the League party, until now a Coalition partner, has pulled the plug on his alliance with the Five Star movement and is pushing for fresh elections, which he would be expected to win. But other parties are determined not to give him an easy ride, and could seek to block elections by forming a new coalition that would exclude the League.
The decision on whom to appoint to try to form a government and on whether to call an election rests with Italy’s president, Sergio Mattarella. This “August crisis” has hit markets badly, including trading in Italian government bonds.
Yields on ten-year Italian debt have come close to 2%, a notable figure in a bond-market scene in which, for example, some German debt is delivering negative yields – investors are paying Berlin for the privilege of lending it money. Because bond yields move in the opposite direction to prices, the rise in yields indicates a sell-off of Italian debt.
However, over the longer term, the MIB index has been fairly resilient, despite Italy slipping in and out of recession and frequently appearing to be on a collision course with Brussels over the country’s fiscal position. It currently trades at a higher level than six months ago, on 20 February, when it stood at 20,304.21, and is higher also than a year ago, when it traded at 20,470.97 on 20 August.
The MIB index contains the 40 most traded stocks on the market, and a look at the names of some of the companies included gives some clue as to the recent robust performance in the face of troubled times.
There are great exporting names of Italian industry, including drinks maker Campari, auto-makers Ferrari and Fiat Chrysler and tyre group Pirelli. Financial services take in UniCredit and merchant bank Mediobanca, while utilities include Poste Italiane, Telecom Italia and Italgas.
No rise in incomes for two decades
Sports fans can buy shares in the legendary Turin football side Juventus.
Italy has long presented a paradox to outsiders, with political volatility existing alongside a sophisticated, export-orientated industrial economy. The country is a member of the Group of Seven rich nations and a leading member of the European Union.
But the International Monetary Fund (IMF) sounded a warning in February in its most recent Article IV economic health check. It wrote: “The Italian economy has been recovering modestly from the global financial and euro area sovereign debt crises. Employment and labour force participation have risen, unemployment has fallen, and banks’ non-performing loans have declined.”
It added: “Nevertheless, significant challenges remain. Real incomes per capita are still near the level of two decades ago and have fallen steadily behind euro area peers, poverty rates are elevated, and public debt is very high.”