Contrary to perceptions, European equities were seen to be buoyant in 2019 as witnessed by the 20% gains in the MSCI Europe ex UK index in sterling terms. The European economy is now in its seventh consecutive year of growth and is projected to continue with this expansion in 2020 and 2021, based on the European Commission’s autumn forecast, albeit at a slower rate than predicted before.
Greece, Russia, and Italy have been top performing stock markets in Europe over 2019 amidst economic and political uncertainty around the globe. While a number of investors deemed these markets to be risky and politically unstable, the gains made just go to show how these great risks often lead to big profits.
If we talk about Italy, the FTSE MIB rose by 28% in 2019 despite the divergences encountered with Germany, along with the additional uncertainty brought about by a snap election. Investors lay weary of Western Europe amidst concerns over the trade wars, Brexit, weak governments, piling debt and lackluster growth. However, further cuts in the benchmark interest rates and increased quantitative easing seems to be pushing Italy the right direction.
Moving on to key economic data, Italy’s manufacturing PMI fell from 47.6 to 46.2 in December despite being forecasted to fall to 47.2. This marks the fastest pace deterioration in manufacturing conditions in over six and a half years in addition to the accelerated pace of job shedding. Furthermore, new orders have also taken a dip. In addition to this Inflation has also been a concern despite the strong moves toward easing. Inflation rates for December clocked in at -0.2% MoM. However, some recovery is expected with inflation to build up to 0.15% on the account of rising consumer sentiments in December, and the stability within the economy.
Falling PMIs may have been a cause of alarm in the past but considering how the world is plagued with the PMI contagion, it is expected that Italy will persevere in this situation and be able to continue with its steady paced growth. As for equities, 2020 seems like a year for gains considering the heightened instability in other regions. As for the Euro, we maintain a bullish stance considering its uncanny resemblance to Japan, due to low policy rates. Considering how interest rates are at “rock bottom” the currency is likely to build up.