A man is wearing a protective mask while standing near the Colosseum as the spread of coronavirus disease (COVID-19) continues in Rome, Italy, November 12, 2020.
Guglielmo Mangiapane | Reuters
LONDON – Mario Draghi’s new government could be good for financial activities and consumer recovery, an analyst told CNBC as investors become more stocky on Italian equities.
The former head of the European Central Bank has ambitious plans to reform the country, including the judiciary, public administration and the Italian tax system – an agenda welcomed by market players who have been trying in Italy as several governments have struggled to get through. through any significant reforms in recent years.
“Structural reform will be difficult. But after a long period of Italian underperformance, expectations are low. So any signs that Draghi could succeed in carrying out structural reforms that stimulate growth could lead to an upward requalification of Italian assets.” say analysts from investment research. Gavekal Research said in a note.
The FTSE MIB, Italy’s leading stock market index, rose about 7% from its January 29 low following Draghi’s appointment. But experts believe there is still room for growth.
UniCredit strategists said last week that large and medium-sized segments of the Italian market could have “absolute performance potential of around 10% of the current level” in 2021.
Removing the tax burden from the workforce by reducing employers’ income taxes and social security contributions would reduce employment costs and increase business productivity.
Italy has taken steps to support businesses and citizens following the Covid crisis, including through tax deferrals. However, it will also benefit from more than € 200 billion ($ 243 billion) in European funding, which is set to begin later this year.
Financial stocks
Mislav Matejka, head of global and European equity strategy at JPMorgan, said Draghi’s policies are “optimistic for the Italian capital market, through tighter peripheral spreads, greater policy credibility and lower business dynamics, helped by fiscal support strong”.
“At the sectoral level, this is particularly positive for the financial statements as well as for consumer recovery games,” Matejka said.
Financial is the largest sector of large and medium-sized Italian companies, and consumer discretionary stocks are the third largest sector.
Draghi, who was called to take over the country’s leadership after a political crisis in January, told lawmakers he would face some “decades-old” problems.
Analysts are particularly optimistic about potential changes to the tax system.
“Removing the tax burden from the labor force by reducing income taxes and employers’ social security contributions would reduce employment costs, increasing business productivity,” Gavekal analysts said.
Draghi also pledged to use future European funds to focus on digitization, retraining and speed up plans for the country to move away from fossil fuels.
“This reform agenda will find its equivalent in the selection of investment projects associated with facilities at EU level,” said Marco Protopapa, an economist at JPMorgan.
Last year, “Draghi emphasized the importance of the Recovery Fund’s resources for Italy, distinguishing between good debts, linked to targeted expenditures, which increase productivity in the form of investments with a high social rate of return, compared to the deficient debt resulting from scattered politics. “Protopapa said.