Investors Flee Italian Bank Stocks

2016 has not been the most promising year thus far for the world economy. Since China devalued its currency and continues to still see very little light for a turn around, almost all global economies have been feeling the repercussions, especially Italy. In December, Italy received a very underwhelming and disappointing stimulus program from the European Central Banks, which really catapulted the situation to where it is today. Italy has “lost over a quarter of its value” just in the first six weeks of the year. To explain how significant this is and to compare to other economies – S&P has lost 9% of its value, while Japan’s Nikkei 225 has only lost 15%. Banks are not the only economic problem in the country, but corporations are feeling it too, such as Telecom and Fiat. What makes this fall such a catastrophe is the fact that at the beginning of the year (and really since 2014), Italy was projected to be one of the top growing economies in the world largely due to “ultralow valuations, long-awaited pickup in domestic growth, and hopes that the new Prime Minister would bring structural reform.” Merrill Lynch and J.P. Morgan, just to name a few, projected that Italy’s banks would have an outstanding growth period this year, even up until 3 weeks ago it was seen as one of the most favorable equity markets.

But an economy that started at the top is now seen as one of the top worst performing developed markets, and everyone is asking, “is this a buying opportunity or a red flag to pull out?” Many investors have already decoded it’s not worth taking the risk and have started fleeing the Italian economy, which is only hurting it more. This economic instability is important for us all to look at because of the effects it will have on business. The article already mentions that the corporations are feeling the complexities, and businesses are close behind in seeing the domino effect hit them next. What does this mean for export of wine? Does this shape the way consumers will be marketed to by corporations when financially they are struggling? For most people, starting a business here does not seem like the most sound idea. Why would you put your new company, everything you have, into a country where there is no potential for growth and greater risk for loss. With Apple joining the Italian Business Family this year, many other corporations and especially start-ups were thinking about taking the leap to Italy – with the mentality that if it’s good enough for Apple, it could be good enough for us. However, will this economic downturn turn businesses away? Even more seriously, will current Italian businesses start looking elsewhere for a new home? We will keep watching the Italian banks, but more importantly, it’ll be vital for all of us to keep an eye on the global economy through its ebbs and flows.



Rush to the Renzit


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