Op­por­tu­nity

Finweek English Edition - - COMPANIES & INVESTMENTS -

The re­cent tur­moil in the Ital­ian elec­tions may have cre­ated a buy­ing op­por­tu­nity for in­vestors with a bit of ap­petite for risk, but more im­por­tantly it may just prove that mar­kets per­form much bet­ter when politi­cians don’t try and get in­volved in the econ­omy.

On Tues­day last week, Euro­pean mar­kets were smashed as the EuroS­toxx50 was down more than 3%, the Ger­man Dax was off more than 2% and the FTSE MIB In­dex, which tracks Ital­ian shares was off nearly 5% in in­tra-day trade.

Peter Garnry, an eq­uity strate­gist at SAXO Bank, pointed out that while many of the fi­nan­cial news sites be­lieve that a po­lit­i­cal stale­mate in Italy will be a bad thing, Bel­gium has proven that this is not nec­es­sar­ily the case. For 535 days, which ended in De­cem­ber 2011, Bel­gium went with­out a for­mal government.

Garnry told clients: “The re­sults were bet­ter than ex­pected eco­nomic growth and bet­ter over­all per­for­mance com­pared with its peers, in­clud­ing a bet­ter than first forecast of their bud­get deficits. Back then, news­pa­pers were full of sto­ries about the catas­tro­phe of no government in Bel­gium, but the irony is that it did not mat­ter.”

He fur­ther ar­gues that all eyes should be on Spain, which is demon­strat­ing far less fis­cal re­spon­si­bil­ity.

But on the sub­ject of Italy he does warn: “How­ever, ev­ery­thing is not rosy about Italy. As the chart be­low shows, Italy’s big

Italy’s nom­i­nal growth

Eu­ro­zone coun­tries gest prob­lem is its lack of growth with nom­i­nal GDP growth be­ing lower than the coun­try’s five-year fi­nanc­ing rate since early 2008. Even more im­pres­sive, this lack of growth has oc­curred in a pe­riod with loose fis­cal poli­cies and rapidly ris­ing government debt. The debt-to-GDP ra­tio is ex­pected to sta­bilise this year, but that will do no good if growth does not re­turn to the Ital­ian econ­omy.”

Derry Pick­ford, a macro an­a­lyst at as­set man­age­ment firm Ash­bur­ton, says that so far Euro­pean pol­i­cy­mak­ers have man­aged to avoid dis­as­ter, and he be­lieves that they

A voter casts his bal­lot at a polling sta­tion on Fe­bru­ary

24, 2013 in Rome, Italy

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