At a loss in Rome: Dispute in Rome: Why Italy’s stock exchange is interesting despite the government crisis | message
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by G. Bläske and P. Schweitzer, € uro am Sonntag
I.n Italy there is another government crisis. The 66th government since World War II is about to end. The small coalition partner Italia Viva of ex-Prime Minister Matteo Renzi announced its support in the dispute with the five-star movement and Social Democrats (PD) on Wednesday and withdrew two ministers from the cabinet. This means that the government, led by the independent Prime Minister Giuseppe Conte since 2019, no longer has a sufficient majority in parliament. The background is a dispute over funds from the European reconstruction fund. Renzi wants to apply for additional money from the ESM rescue fund. The populist, long-term Europe-critical five-star movement vehemently rejects this. Negotiations and the continuation of the coalition, with or without Conte, were initially considered a possible scenario. If the previous partners fail to agree, President Sergio Mattarella should try to set up a government of national unity because of the Corona crisis. The former President of the Constitutional Court Marta Cartabia is being traded as a candidate for the leadership of such a government, but the former ECB boss Mario Draghi is also being discussed. Apart from the far-right, no party wants new elections.
The stock exchange in Milan reacted calmly, the rupture of the government had appeared. Despite all the instability, the various governments have agreed on one thing in recent years: They have greatly expanded the influence of the state on the economy. For example at Europe’s largest steelworks in Taranto in southern Italy. It is responsible for environmental damage, disease, death – and only produces losses. Nevertheless, before Christmas Rome got involved in AM InvestCo, to which the steelworks belongs, and pays 1.1 billion euros for a share of 60 percent in the company previously controlled by ArcelorMittal. The planned investment to “save” the more than 10,000 jobs is to be financed in part with funds from the European reconstruction program.
The loss-making airline Alitalia, which has been under government administration since 2017, is also to be rescued again. For this purpose, a company called Alitalia ITA is founded and endowed with three billion euros. The pandemic offers the opportunity to keep ailing companies alive with state aid. The EU Commission should wave through the help for the zombie companies and not look so closely.
The Golden Power regulation that has existed since 2012 to protect strategic companies has been extended to almost the entire economy. This could prevent Rome from taking over the commercial vehicle manufacturer Iveco by the Chinese FAW. But companies from the EU should also be slowed down. The parties don’t seem to care whether this is compatible with EU law. The case of ProSiebenSat.1 shareholder Mediaset also caused a stir. The rights of the French Mediaset major shareholder Vivendi were restricted by law. And ex-Prime Minister Romano Prodi regrets that Rome did not get involved with the Fiat Chrysler car company, which is currently merging with the French PSA Peugeot Citroën. A counterweight to the French state that is involved in the new group is needed.
A kind of sovereign wealth fund
The extended arm of economic policy is the majority state-owned development bank Cassa Depositi e Prestiti (CDP). The 170-year-old institute is the largest investor on the Milan stock exchange and had investments worth almost 23 billion at the end of 2019. The government has now provided the CDP with a further 44 billion to acquire new holdings. 13 of the 50 largest companies in Italy and many other companies are already wholly or partly in state hands. CDP boss Fabrizio Palermo, together with Economics Minister Roberto Gualtieri and the state-affiliated bank Intesa Sanpaolo, ensured that the LSE sells the Milan Stock Exchange to the French-dominated Euronext. The CDP will have a 7.3 percent stake in Euronext in the future. The fact that Rome can be so active is thanks to the leniency of the EU and European aid measures. In addition, the ECB buys virtually unlimited amounts of Italian government bonds. This means that Italy can suddenly refinance itself cheaply again.
The CDP also played a leading role in the rise of the payment service provider Nexi, whose share price has doubled since its IPO in April 2019. Palermo sees it as its job to create national champions. The CDP sees itself as a kind of sovereign wealth fund that invests in listed and non-listed companies. It does not want to protect the state’s more precisely defined “strategic interests”.
However, the development bank is not allowed to invest in banks or in companies that are in the red. The state steps in directly, as with Alitalia or various banks, such as the Monte dei Paschi di Siena (MPS), which was saved from bankruptcy in 2017. The 64 percent state house urgently needs a capital increase. Rome wants to spruce up the bank with further billions and is urging HVB parent Unicredit to take it over.
Meanwhile, the CDP is forging new corporations. It becomes the main shareholder of the monopoly network company, which is to be formed from the network business of Telecom Italia and Open Fiber. And she is about to join the Autostrade per l’Italia motorway company. Its main shareholder, the infrastructure group Atlantia, which is 30 percent controlled by the Benetton family, is ready to sell its stake. International investors are increasingly concerned about government influence. Rome must be careful not to annoy them.
The fund invests in a concentrated portfolio of currently 30 Italian companies. The largest positions include bank Intesa Sanpaolo, semiconductor manufacturer STMicroelectronics, utility Enel and payment service provider Nexi. The fund has mostly left the competition behind in recent years. Within ten years there was an average return of around six percent per annum. Interesting admixture.
From a one-year and multi-year perspective, the fund is one of the best products for shares in the euro zone. In addition to standard stocks, small and medium-sized high-growth companies are included in the portfolio. With a share of twelve percent, Italian stocks are currently weighted higher in the Berenberg fund than in other products in the category and in the benchmark index. Only companies from Germany, the Netherlands and France currently have larger regional shares. Good way to get some Italy into your depot.
Image sources: Iakov Kalinin / Shutterstock.com, tkachuk / Shutterstock.com