Achieving Impressive Returns in the Italian Stock Market: Insights and Recommendations

Achieving Impressive Returns in the Italian Stock Market: Insights and Recommendations

Introduction:

In recent years, the Italian stock market has witnessed significant growth, with the FTSEMIB index surging by +25% since the beginning of 2023. This upward trend has been particularly favorable for blue-chip companies, with some experiencing their highest levels in fifteen years. One notable portfolio that has capitalized on this growth is the Websim LONG Piazza Affari, which has achieved a remarkable +37% return since the start of the year.

Factors Driving the Market Performance:

The impressive performance of the Italian stock market can be attributed to various factors. Firstly, the resilience of the Italian and global economies has contributed to the positive sentiment among investors. Additionally, positive quarterly reports from companies have further bolstered market confidence. As a result, earnings estimates for 2023 and 2024 have been revised upwards by 7.2% and 4.7% respectively, adding to the overall market gains.

Sector Performances:

Within the Italian stock market, certain sectors have stood out in terms of performance. Industrial companies have experienced a significant surge of 16%, closely followed by banks with a 7.7% increase. These sectors have not only driven market growth in the past month but have also been among the top performers year-to-date. This highlights the importance of carefully selecting sectors with high visibility when constructing a stock portfolio.

Market Outlook and Potential Risks:

While the market outlook for the second half of 2023 remains cautious, there are several reasons for optimism. Despite concerns about economic growth and earnings, the market continues to trade at attractive multiples, slightly above 9x expected earnings. However, geopolitical uncertainties and the trajectory of monetary policies remain areas of concern. The market will closely monitor macroeconomic data to determine the direction of future price movements.

Stock Selection and Performance:

The Websim LONG Piazza Affari portfolio has achieved exceptional returns, with the five best-performing blue-chip stocks being Unicredit (+73%), BPER (+64%), Iveco (+55%), Leonardo (+52%), and Stm (+47%). While Stm has recently been sold to secure profits, two of these stocks remain in the portfolio. On the other hand, the five worst-performing blue-chip stocks are Diasorin (-21%), CNH (-12%), Erg (-10%), FinecoBank (-9%), and Tenaris (-7%). Despite this, two stocks from this group are still present in the portfolio, with FinecoBank being opportunistically purchased at lower prices.

Operational Recommendation:

Based on the current market conditions, it is prudent to adopt a more cautious approach, especially considering the upcoming holiday season in August, which typically lacks significant microeconomic news. In addition, the risk of negative surprises on the macro and geopolitical fronts may disrupt market performance. Therefore, it is advisable to sell Interpump, which has gained 17% since the beginning of the year. Furthermore, increasing the cash position from 10% to 20% can provide a buffer against potential market volatility.

Conclusion:

The Italian stock market has demonstrated remarkable growth in 2023, providing investors with attractive opportunities. By carefully selecting sectors with high visibility and staying updated on macroeconomic trends, investors can position themselves to benefit from future market movements. However, it is essential to approach the market with caution, particularly during periods of potential uncertainty. By following these recommendations and maintaining a strategic stock selection, investors can aim to achieve favorable returns in the Italian stock market.