Italy’s Stock Market Undeterred by Politics

Italy’s Stock Market Undeterred by Politics


FLASH: Italy’s largest bank UniCredit and Ferrari have been super winners YTD. With all risk assets in Green in Y 2019, the rally is showing no signs of fatigue.

Even Italy, a country that caused deep concerns for Europe last year, is now in a Bull market.

The FTSE MIB is the biggest gainer among main equity indexes in the region. It is something to watch, with European elections around the corner and the recent budget standoff with the EU.

The outperformance did not stop Citigroup’s quantitative model from ranking Italy as the most attractive equity market worldwide in a note this week.

That said, the country’s score, based on 17 factors, has dipped to 1.1, against the 3-month average of 1.4.

The country has benefited from a series of positive events, including some cracks in the coalition, easing tensions with Brussels over its budget, and an unchanged credit rating at Fitch in February. The bounce in its PMI data was the cherry on the cake, fueling hopes that the current economic downturn will be short-lived.

Interestingly, the strong weighting of financials in the FTSE MIB (35%), Europe’s highest after Spain’s IBEX, did not act as a drag this year. On the contrary, Italian lenders rebounded sharply after they were sold off in Y 2018.

UniCredit (OTCMKT:UNCRY) Italy’s largest bank, is up 25%, outperforming peers. And it is still an analyst’s favorite, with 88% of buy ratings and no sells among the Bloomberg consensus.

The bank has been in extra focus following a “Financial Times” report it is readying a bid for Commerzbank AG in case talks to merge the German lender with Deutsche Bank AG collapse.

By contrast, Ferrari (NYSE:RACE) which has a 4.5% weight in the index, has seen its stock soar 40% this year and is trading above the average consensus price target. Overall, the iconic Italian Supercar maker’s share price strength cannot be taken for granted.

Italian politics remain worrisome, and fundamentals are still weak, while the fiscal situation is fragile, Barclays strategists said in a note Thursday.

Even with easing budget-related tensions with the trading bloc, the country’s stance is unlikely to change, keeping anti-EU rhetoric during the election, while avoiding full confrontation, Barclays said. This may not mask Italy’s current problems as it grapples with weak economic activity, the highest debt-to-GDP ratio of the Eurozone after Greece, while struggling to keep the budget on track.

Looking for southern Europe exposure, the strategists prefer Spain, where fundamentals are healthier.

Technically, signals are starting to look a bit stretched too. Within the market breadth of the FTSE MIB, 90% and 68% of stocks are trading above their 50-Day and 200-Day MA’s, respectively. With 30% of components in overbought territory, Italy has one of the highest proportion of overbought stocks in Europe.

The iconic Italian Supercar manufacturer claimed the title according to the latest Brand Finance Global 500 2019 report launched at the World Economic Forum in Davos.

Ferrari is the Aristocrat of the automotive sector.

HeffX-LTN overall technical outlook for RACE is Bullish across the board, and there is very little resistance here and none above 140.26. All of our Key indicators are Very Bullish in here.

Stay tuned…

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