A man is wearing a protective mask while sitting near the Colosseum, while the spread of coronavirus disease (COVID-19) continues, in Rome, Italy, on November 12, 2020.
Guglielmo Mangiapane | Reuters
LONDON – Mario Draghi’s new government could be good for financial investments and consumer recovery, an analyst told CNBC as investors become more bullish on Italian equities.
The former head of the European Central Bank has ambitious plans to reform the country, including the judiciary, public administration and tax system of Italy, an agenda well received by market players who have been provisional in Italy, as several governments have struggled to pass significant reforms in recent years.
“Achieving structural reform will be difficult. But after a long period of low Italian performance, expectations are low. Therefore, any sign that Draghi can achieve structural reforms that drive growth could lead to an upward overheating of Italian assets.” , analyze research researchers. said the firm Gavekal Research in a note.
The FTSE MIB, Italy’s leading stock market index, has risen by about 7% from the January 29 low, following Draghi’s quote. But experts believe there is more room for growth.
UniCredit strategists predicted last week that large and medium-sized market segments of the Italian market could have “an absolute yield potential of approximately 10% compared to the current level” in 2021.
Moving tax pressure away from the labor force by reducing income taxes and social security contributions for employers would reduce labor costs, which would increase corporate productivity.
Italy has taken steps to support businesses and citizens in the wake of the Covid crisis, even through tax deferrals. However, it will also benefit from more than 200 billion euros ($ 243 billion) in European funds, which will start coming in later this year.
Financial actions
Mislav Matejka, head of JPMorgan’s global and European equity strategy, said Draghi’s policies are “bullish for the Italian equity market, through tighter peripheral differences, greater credibility of the policy and the fall in the momentum of the activity, helped by the strong fiscal support “.
“At the sector level, this is especially positive for finance as well as for consumer recoveries,” Matejka said.
Finance is the most important sector among large and medium-sized Italian companies, and consumer discretionary actions form the third most important sector.
Draghi, who was called upon to take over the country’s leadership after a political crisis erupted in January, told lawmakers he would address some issues “that are open for decades.”
Analysts are particularly optimistic about possible changes to the tax system.
“Moving the tax burden away from the labor force by reducing income taxes and social security contributions for employers would reduce labor costs, increasing corporate productivity,” Gavekal analysts said.
Draghi has also pledged to use upcoming European funds to focus on digitization, requalification and speed up plans for the country to move away from fossil fuels.
“This reform agenda will find its counterpart in the selection of investment projects associated with EU-wide facilities,” said Marco Protopapa, an economist at JPMorgan.
Last year, “Draghi emphasized the importance of the Recovery Fund’s resources for Italy by distinguishing between good debt, linked to targeted spending that improves productivity in the form of investment with a high social rate of return, as opposed to incorrect debt resulting from dispersed political measures. “Protopapa said.