The Italian financial industry, which knows savers well, immediately sensed the tempting opportunity to collect commissions thanks to the Pir, i.e. the Individual Savings Plans introduced with thelast Law of Stability.
In these first months of 2017, about twenty PIRs started off in a piecemeal fashion. They grow rapidly in number and, within weeks, they have already collected more than a billion euros of savings from Italians, who greatly appreciate the tax exemption seasoned with the idea of helping compatriot companies. And in Bag the effect is felt. And how.
MID AND SMALL CAP STOCKS TO THE RESCUE
The effect on the market is what are defined as "technical": the strong demand for PIR determines a significant increase in the demand for securities compatible with the PIR. So let's talk about stocks and bonds Italian companies, mostly medium-small, not included in the Borsa Italiana FTSE MIB index.
However, the demand for these titles collides with arather stiff offer, because listing a new share or issuing a bond is not something that can be done overnight (although this is one of the probable medium-long term effects of PIRs). If the demand for securities increases but supply is stable, the price rises. No Way. In fact, the Borsa Italiana indices reflect this phenomenon well, just take a look at the graph.
The most sensitive index of all is the FTSE Italy STAR, the one that collects companies with a capitalization between 40 million and 1 billion euros, ie those most sensitive to these purchase flows, because they are "small".
Follows the FTSE Italia Mid Cap, made up of the top 60 companies by capitalization that do not belong to the FTSE MIB index, which are also eligible for PIRs.
Finally comes the FTSE AIM Italy, the index of shares listed on the AIM, the regulated market of Borsa Italiana aimed at small-medium Italian companies with high growth potential (...and also rather illiquid). The FTSE MIB, which contains the top 40 Italian companies, the so-called large caps, remained much lower, moving in line with the Euro Stoxx 50 stock market index.
THE IMPORTANT IS TO BUY
The purchase flows at the moment on the securities of Italian small and mid-cap companies are quite uncritical: there is so much money to invest that, put bluntly, there is no way to accurately select the best companies according to any financial criterion: many they would not have enough capacity in terms of capitalization. There isn't a lot of room to work hard. And so, in essence, everything that is PIR-compatible is bought massively.
HOW LONG WILL IT LAST?
It is likely to last a while longer, unless there are massive corrections due to the various systemic risks out there. First, many banks and asset managers (especially foreign operators) have yet to leave with the Pir. And, when they do (we are talking about other mutual funds, unit-linked policies, asset management, perhaps other ETFs), if they know how to promote their products well, they will entice savers and generate further demand for securities. A demand that will push the prices of securities even higher.
Furthermore, the recent strong performance by PIRs will likely still support demand, while, as I said before, it is unlikely that the supply of securities will increase drastically in the short to medium term. If we consider that in Italy about a third of households' financial wealth remains parked in zero-yield (or almost) current accounts, there is plenty to invest.
NOT ALL GOLD…
From the saver's point of view, as we have already seen on this blog, there are both lights and shadows to be aware of in order to avoid irrational and imprudent investments – which could lead to dangerous concentrations of risk in Italy, far from an ideal asset allocation. Even because the Italian savings industry is no stranger to the creation of rapacious products. And the Pirs are a nice temptation…..
