Once upon a time, more than a decade ago, countries of theMediterranean area, also called peripheral compared to the so-called "core" or even worse Pigs, which were at the center of cross-debt crises. Today, however, it is the stock indices of Greece, Italy and Spain which this year have superato the biggest competitors of Germany and France, outperforming the pan-continental index Stoxx Europe 600. This is underlined by the Financial Times in yesterday's edition.
All this in a context where it is the'the whole of Europe, especially in the most critical moments of Trump's policy, to be considered as aalternative to US assets. But investors have noticed that compared to the indices of Germany and France, the stock markets of thesouthern Europe are exchanged at much lower price/earnings ratios, offering investors a entry point more convenient in the Old Continent. "Europe has become attractive to investors, and many are carefully searching for the best value," Roland Kaloyan, head of European equity strategy at Société Générale, told the FT.
The greatest wave of interest from investors in the Old Continent is perhaps to be correlated with the presentation last March of fiscal stimulus package “whatever it takes” of the Germany and with the subsequent huge increase in defense spending for the whole of Europe , just as, on the contrary, the market nervousness regarding the fact that the trade war triggered by President Trump could hit Wall Street returns.
But they were the main indicators of Italy, Spain, Greece and Portugal (the very protagonists of the old acronym Pigs) who produced better returns, exceeding the German blue-chip index as well Dax this year. The Financial Times remember for example that the Greek credit institution Alpha Bank drove the earnings of the Athens Stock Exchange, more than doubling in price this year, as the information technology group Indra Systems has risen by more than 90% to Madrid Stock Exchange.
The spurt of economic growth in the southern Mediterranean
Also contributing to the rally was the strong economic growth of Southern Europe, remember the FTData from the second quarter of this year showed that theGreek economy grew by 1,7% on an annual basis, while the German GDP it decreased by 0,3%.
As for the'Italy, the same French newspaper Le Monde wrote in recent days that in the eyes of investors our country has become "credible how much France, if not more", while the British press has highlighted Italy's dominance over the United Kingdom in terms of per capita GDP. According to the World Bank, Italy's per capita GDP rose to $60.847 last year, surpassing Britain's $60.620. Le Monde He also credited Rome with significantly reducing its public deficit, while in France it continued to rise. British newspapers Spectator and Telegraph, both close to the Tories, instead they focused on the fact that, for the first time since 2001, the average level of economic welfare in Italy it has surpassed that of the United Kingdom.
The countries once called “core” – Germany and France – are instead going male in terms of GDP growth”, David Zahn, head of European fixed income at Franklin Templeton, told Ft. “From a fiscal standpoint, they are doing very well,” Zahn added, pointing to the contrary. deficit reduction of budget in Italy, Spain, Portugal and Greece.
The political stability of the southern area attracts investors, unlike France
While Southern Europe is enjoying a period of relative political stability, the parliamentary turmoil in France have hit the country's stock market in recent weeks. The minority government led by François Bayrou It will fall today, after the prime minister called a surprise vote of confidence over his fiscal plans. "We are not buying France," said George Efstathopoulos, a multi-asset portfolio manager at Fidelity International. On the other hand, he added, our investment in Greek stocks over the past two years has been "one of our best-performing positions." "Greece has been a stellar economy," he added, while the Greek stock market "has better fundamentals and much cheaper valuations than the rest of Europe."
LCAC 40 Index Paris fell more than the European stock benchmark, while the extra yield that investors demand to hold 10-year French government bonds compared to German bunds has increased dramatically. greater risks they come from what might happen in the next few weeks or months. The France's inability to restore its public finances has led to the formation of three governments in just over a year, and there are no signs that a fourth will perform better. Investors could therefore find themselves facing another budget stalemate in the coming months, the prospect of other early parliamentary elections and even the insistent calls for the resignation of President Emmanuel Macron.
Southern economies safer from Trump's tariffs
Le Southern economies They also appear to be less exposed to trade turbulence triggered by Trump's tariffs. Dirk Steffen, chief investment officer for Europe at Deutsche Bank Wealth Management, said that Southern European stock markets are oriented towards their own national economies, which means they are relatively protected from the effects of the US tariffs. On the other hand, “exposure to the United States and Asia is much more pronounced in Germany“,” he said, with changes in global trade “affecting some countries much more than others.” Meanwhile, Steffen added, “Germany is now a little more expensive.”
The beneficial "weight" of "financials" on Southern stock markets
Also the composition of the major stock indices in peripheral countries has been helpful, investors said. Societe Generale's Kaloyan said the "big explanation" for the outperformance was the heavy weighting of financial companies in the relatively smaller Southern European stock indexes. financial sector represents 50% of the Italian index FTSE MIB and 44% of the Athens Stock Exchange and banks represent the8,6% of the weight of the Stoxx Europe 600, while The German DAX weighs 5,4%.
Le European banks have seen stock prices rise to highest levels since the crisis global financial sector in 2008. “We are talking about a sector that remains one of the best in the European market,” Kaloyan said. Major lenders have benefited from a long period of higher interest rates which improved their earnings, while optimism about the European economic outlook and relatively cheap share prices attracted investors to the market, says the FT.
Rating: The possible opposite evaluation of Italy and France
But they will also be the rating coming soon in next weeks to probably further mark the gap between the northern and southern parts of the European price lists: on the one hand, there are many indications that the Italy's rating could be raised, on the other hand that of the France could be cut. Fitch and DBRS will make their decisions known next Friday, September 19, Scope the September 26, Moody's Ratings on October 24th and S&P Global on November 28th.
With Paris in chaos, Italian government bonds have become very attractive to investors. At the latest auction, BTP at 7 and 30 years the Treasury collected 18 billion euros but with an exceptional demand that exceeded all expectations: 217 billion and, as proof of the interest in the Italian paperForeign investors have acquired more than 70% of the bonds. Many observers believe the time has come for Italy's rating agencies to upgrade its position. Fitch, Moody's and DBRS have all assigned Italy a positive outlook, while S&P and Scope remain at “stable”.
"I completely agree" that a triple BBB rating is not enough for Italy," said Gian Maria Gros-Pietro over the weekend from the Ambrosetti meeting in Cernobbio, joining other observers, Class CNBC reports. "This rating has not reflected Italy's true financial strength for some time, but above all, it is clearly lagging behind the markets' assessment." "The narrowing spread means that the markets no longer believe the value and solidity of Italian public debt is far from that of other European countries," concluded the president of Ca' de Sass.
The upgrade reduces the perception of risk and therefore should lead above all to an improvement on the spread, the spread with the German Bund, potentially revising the August lows to 77,6, which already represented the lowest level since April 2010.
Opposite situation for the France's ratingPolitical and fiscal turmoil has caused the Oat-Bund spread to hit 82 bps and the 10-year French government bond yield rose to nearly 3,6%, approaching the Italian one, after Bayrou called the vote, although it has since fallen to around 3,45%. In this context, several strategists have already flagged the risk that rating agencies may decide to downgrade FranceFrance's credit rating was downgraded by Moody's after the collapse of its previous government last year; a repeat would be a severe blow, with the risk of massive sell-offs in its already-stressed government bonds.
