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Deja Bù: Mark reconnects with Jessica Harnois, founder Bù Wines | SaltWireLONDON/MILAN - Italian stocks are trading at their deepest discount in 35 years compared to world shares as investors fret over the fiscal outlook in one of Europe's most indebted economies, although some reckon the shares are too cheap to ignore.
But domestically focused companies in sectors such as consumers and industrials have been hurt by an aging population, debt at over 100% of GDP and two decades of near-zero economic growth that was only briefly interrupted by a post-COVID rebound. Recent cuts to economic growth and increases to budget deficit forecasts have revived concern about potential sovereign stress, pushing the premium investors demand to hold 10-year Italian bonds over safer Germany above 200 basis points last month.
Goldman Sachs estimates that each 10 bps rise in sovereign spreads takes around 2% off Italian bank shares and 1.5% off the FTSE MIB index. It advises avoiding the blue chip index after its outperformance. The number of outstanding units in BlackRock's iShares MSCI Italy ETF has more than halved to 8.6 million from 18.9 million in October 2021. Its MSCI Europe ETF has seen the number of units fall by less than 10% over the same period.While Italy's weak economic outlook and high debt suggest a significant re-rating of shares is unlikely anytime soon, investors expected some clawing back given just how deeply discounted some parts of the market are.
"Many companies are trading on ridiculous multiples. A window of value is opening up on small caps, which is worth seizing," he said.
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