Italy from outperform with Piazza Affari. This is what emerges from the Credit Suisse analysis dedicated to financial markets in times of war between Russia and Ukraine. Italy collects a very positive opinion:
“We expect that Italian equities (MSCI Italy) outperform developed market equities (MSCI World) – reads the “House View by Credit Suisse – Tactical Judgments” report – Our constructive stance is supported by compelling fundamentals (valuation and earnings), a positive correlation with rising yields and a potential for economic recovery ”.
View from Credit Suisse on global GDP and inflation; central banks; euro with fears of Europe’s dependence on Russia in times of war; emerging currencies.
“After a correction of more than 11.4% from one year to the next (YTD), the valuation of MSCI Italy continues to be attractive in our view. On a relative basis, the valuation (12M Fwd P / E) is at its lowest in the last 20 years, which allows for a margin of appreciation and provides a probable “valuation buffer” in the event of less favorable market movements. The historical and relative valuation metrics are attractive (47% off MSCI World) combined a un generoso dividend yield (5.3% against 2% for the MSCI World) “.
“The earnings picture is also constructive. While earnings estimates are slightly below expectations for developed markets, the Italian equities show strong earnings breadth and strong momentum. MSCI Italy has a positive correlation with rising yields due to its significant exposure to the financial sector (around 30% of the index). Given that relative performance is closely related to bund yields and that our fixed income strategists see a gradual rise in yields, we expect Italy should benefit in a context of rising yields “.
“On the macro front, Italy is the largest beneficiary of the European Union’s recovery fund. In our view, this, coupled with the phasing out of COVID-19 restrictions and the reopening of tourism, should further help the recovery. Our economists expect annual GDP growth of 3.2% for 2022, above the 2.8% forecast for the broader Eurozone. The political landscape remains favorable in our view as the risks of political transition have diminished after the presidential elections in January, in which President Sergio Mattarella and Prime Minister Mario Draghi were reconfirmed by the voters. Mario Draghi’s reforms have helped bring stability to the region, which we expect to remain a supportive wind for the market in the future. We highlight the sensitivity of the utilities sector (one fifth of the index) to changes in yields, regulatory risks on Italian utilities and tax developments as key risks for our view outperform “.
“Also bank exposure to Russia of Italian financials remains an obstacle, but it is likely to be low in terms of total exposure, as key ratio requirements would continue to be met even under a stress scenario. Italian financial stocks, along with European ones, already have suffered a significant sell-off following the Russian invasion of Ukraine. Some form of de-escalation in the Ukrainian conflict would likely lead to a continued turnaround, as indicated by recent market movements.