Going Bullish Italian Equities
We are initiating a bullish Italian equities view, played through the Milano Italia Borsa (FTSE MIB) equity Index, at an entry level of 21,345. This is based on a constructive technical picture, positive political developments and low relative valuations that we believe can drive the index to outperform regional equity indices in the coming months.
With a price-to-book ratio of 1.1x, valuations on the FTSE MIB remain well below periphery and core eurozone peers, and this is justified given Italy's low growth outlook and lack of reform. However, the urgent reform agenda and broad popular support of Prime Minister Matteo Renzi has increased the chances that structural impediments to stronger corporate profit growth will begin to be addressed.
Improving sentiment towards Italy, and the eurozone periphery more generally, is evidenced by plummeting sovereign bond yields. A bullish technical break of long-term resistance for the FTSE MIB supports our view that sentiment towards Italian equities has also reached a turning point.
|Bullish Technical Signals|
|Italy - FTSE MIB Equity Index, Weekly|