The Italian stock market has performed terribly in the last decade
This should lead to interesting bargains because Italy is and will remain a rich country
We make a small social analysis of why Italy is having difficult times apart from the high debt levels
Italian stock market
Many praise stocks like the best investment that there is in the long term. This is because the most famous stock market, the U.S. one, has enjoyed a period of long term economic growth and prosperity that pushed stocks higher. There are other examples like Japan and Italy where the stock market didn’t perform well at all in the last 20 years.
Figure 1 Italian stock market index in the last 20 years
Source: Yahoo Italia
Only investors that invested in the midst of the global financial crisis or the Greek crisis in 2012 are in positive territory. The rest that invested in the Italian stock market in the last 20 years are in negative territory, perhaps they break even with dividends. The last time the Italian stock market was doing well was before the financial crisis when Italy as a country was still growing, albeit slowly.
Slow and negative growth is due to the constant political turmoil and high unemployment. Economic activity on aggregate has shrunk in the last decade and hadn’t been stellar before that.
Figure 2 Italy GDP annual growth rate
Source: Trading economics
Italy as a country is different than the U.S. and the north of Europe. Except for corruption at the highest levels and constant political turmoil the reasons for underperformance are embedded in the Italian society. Italy has a difficult time when competing globally because ‘nobody’ speaks English. The average number of languages spoken per person is below the European average.
Figure 3 Languages spoken per person in Europe
Source: Jakub Marian
Another reason, that also shows lack of motivation with youngsters is the percentage of people aged between 18 and 29 still living with their parents. Italy boost the highest percentage in Europe.
Figure 4 Percentage of people living with parents
Source: The Guardian
This social analysis will suffice in the explanation why Italy has a hard time returning to economic growth, apart from the usual culprits of extremely high debt to GDP ratio of 130%.
However, what you can’t take away from Italy is its beauty, historic wealth, touristic attractions, agriculture, style, wealth and a general knowhow of living well, ‘la bella vita’. If you go through the majority of Italian cities in the evening you will see that restaurants and bars are full. Even the former Italian prime minister, Silvio Berlusconi, commented in that way when he was asked about the crisis in Italy back in 2011.
Therefore, even if the aggregate economic indicators do not look well at all there is wealth in Italy, business is being done and many sectors are growing. In order to find out which sectors are growing, most specifically, which stocks will be growing in the future despite the Italian economic situation it is necessary to dissect the market stock by stock. The general market low levels should lead to the discovery of some bargains. We have already shared one interesting stock here, but there will be more as we dig into the Italian market, so be sure to subscribe to Eurostockpicks for in depth analysis on the best European stocks directly into your inbox.
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