News Analysis: Italy stock exchange down 20 pct in six months, driven by investor jitters

Source: Xinhua| 2018-10-18 19:24:42|Editor: mym
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by Eric J. Lyman

ROME, Oct. 18 (Xinhua) -- Investor nervousness sparked by the policies of Italy's government is steadily pushing stock prices lower, but that does not mean Italian companies will be trading at bargain prices, analysts said.

Italy's government is headed for a clash with the European Union over deficit levels in next year's national budget. The euro-skeptic political parties backing the government of Prime Minister Giuseppe Conte have clashed with European officials in other areas, including migration policy. Additionally, the Italian media continues to speculate that Italy might hold a national referendum next year on whether or not to remain part of the euro zone.

Those developments have taken an economic toll: the yield on Italian bonds has risen to the highest level in five years, reflecting investor nerves and raising the cost for Italy to borrow money. Some economists even speculate that Italy's problems might be at least partially responsible for the euro weakening against the dollar and other major currencies.

The Italian Stock Exchange in Milan has taken a hit as well: since early May, the exchange's MIB-30 blue chip index has lost more than 20 percent of its value, driven mostly by weakness in banking stocks. Just 15 of the 100 largest publicly traded companies on the bourse managed to gain value over that span.

Though other major European stock exchanges have lost ground over the same period, none have fallen as much as Italy's exchange.

"Italy is definitely the black sheep of the European family in terms of stock performance," Francesco Caruso, a financial analyst and founder of Ciclie Mercati, an investment consultancy, told Xinhua. Caruso used a colloqualism to describe the member of a group.

Matteo Giuliano Caroli, an economist specializing in international corporate management with Rome's LUISS university, noted that Italy's already troubled banks have been the biggest stock exchange losers over the last six months. They have been because of a higher exposure to government bonds and currency fluctuations.

Both analysts said lower stock prices could make some Italian companies vulnerable to takeovers by foreign buyers.

Caruso said a well-run Italian company with a stock prices pushed lower due to general market worries might attract attention from abroad. Even if prices are pushed low, banks would be unlikely takeover targets, he said, since Italian regulators have shown in the past they would block such deals if possible.

"I could imagine a luxury goods company, or a fashion company drawing interest," Caruso said.

Speaking to Xinhua, Caroli said that because Italian companies are on average smaller than those in other European countries, they could draw the eyes of foreign companies looking to get a quick foothold in Italy. But he cautioned the same economic worries pushing stock prices lower could make companies less attractive.

"If stock prices drop because the long-term outlook for the Italian economy is less positive, then what impact will that have on Italian companies?" Caroli asked. "If the market is working correctly, the stock price should go down in step with the outlook for that company."

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