Truths and surprises on the Milan Stock Exchange
Three considerations on the performance of the Milan Stock Exchange in 2023. The analysis by Alberto Gustavo Franceschini Weiss, president of Ambromobiliare, a strategic finance consultancy company.
Some final considerations on the Milan Stock Exchange at the beginning of 2024.
Stock investing yields more than fixed income
The FTSE MIB gained 25.5% in 2023; this means that, if an investor had bought an ETF replicating the FTSE MIB (and there are many), he would have had a gross return of over 25%: not a bad return…
If we wanted to go back 2 years, to the beginning of 2022, the yield would have been above 9.30%. Which proves that stock investing is always better than fixed income securities.
The underlying reasons are various, but the most important is that the Milan Stock Exchange has outperformed the European stock exchanges simply because it is unbalanced towards the banking sector: with the rise in rates, banking shares have soared; Unicredit did +82.6%, Intesa +24.5% MPS +48.5%
The happiest were the foreign institutional investors, given that the free float is mainly in the hands of international funds that believe more in Italian companies than national funds do (and here we need to open not a chapter, but a "divine comedy"…)
The Milan Stock Exchange, which is the place where shares are invested and which has allowed these performances, has structural problems
The Milan Stock Exchange also proved to be the most dynamic in Europe: 39 listings in one year, which brings the total number of companies listed on the Milan Stock Exchange to 429 companies.
- Even in this case the positive data hides some problems:
Of the 39, 34 are companies that were listed on the EGM segment of the Italian Stock Exchange (Euronext Growth Milan – Formerly AIM Italia), the list reserved for SMEs, and whose placements in some cases were less than 3 million euros. - Only 5 companies were listed on the so-called "main list" with placements exceeding 100 million euros but less than 1 billion
- The figure of 429 listed companies is net of 26 cancellations of companies that left the stock exchange (so-called "delisting"), almost all following takeover bids launched by investors who took over the majority from the old controlling shareholders. Considering that companies such as DEA Capital and Autogrill were among the delistings, the money refunded to investors is more than the money used to subscribe to the new IPOs.
In practice, at the end of 2023 the funds and savers who invested on the Milan Stock Exchange are generally more liquid and richer than they were at the beginning of 2023.
The good numbers, however, do not hide the fact that the Milan Stock Exchange is not in a very prosperous phase: at the beginning of 2013 there were 317 companies listed, of which 27 in the EGM, the segment dedicated to SMEs; at the end of 2023 (i.e. 11 years later) there were 429 listed companies, of which 203 were listed at the EGM.
In these 11 years, over 30 SMEs have moved from the EGM to the main list – the so-called "translisting", the majority of which are in the STAR segment.
In practice, the Milan Stock Exchange has lost almost 30% of medium-large companies. Without the EGM segment, the Milan stock exchange – in terms of number of listed companies – would have regressed to the levels of the late 1990s. If we then look at the IPO collection, Lottomatica alone raised more than all the new companies listed at the EGM in 2023.
The problem is partly regulatory: today the Milan stock exchange is structured to accommodate SMEs without problems, while it still has suffocating and rigid regulations to accommodate medium-large companies. And the main reason lies in the procedures set by CONSOB which make access to the stock exchange very expensive and complicated.
But the real problem is the absence (and I want to underline this) of large long-term institutional investors: Insurance and Pension Funds
The Milan Stock Exchange is in the hands of foreign investors and insurance and pension funds need to be redirected to the real Italian economy
As demonstrated in recent years, stock investments yield on average much more than investments in fixed income securities, but more foreign investors believe "Impresa Italia" than national ones. And this is a very dangerous typically local anomaly: any "storm of branches" in national politics causes shocks among foreign investors who suddenly disinvest and return, causing shocks that cause damage to Italian savings.
And it is not true that there are no entrepreneurs who want to open up to financial capital, because the passage from zero to 209 listed SMEs in 15 years (the EGM started in 2009) demonstrates that entrepreneurs who want to grow in a healthy way and with few There are debts and they are numerous.
The underlying problem is the very low "risk appetite" of Italian institutional investors towards the Milan Stock Exchange: in particular, pension funds which are long-term institutional investors (over 200 billion Euros) invest over 25% in shares, but less than 5% on the Milan stock exchange (source: COVIP), just as the PIR Funds, which raised over 17 billion, bought shares of companies listed at the EGM for less than 250 million euros (source: Assogestioni).
There is a need for a change in the current legislation on the asset allocation of pension funds (change at no cost to the State), as happened in France, for which long-term institutional investors are strongly encouraged to invest in French shares.
Furthermore, a concomitant and important "marketing" effort would also be necessary to make Italian savers understand that supporting their businesses is a wise and far-sighted choice, much more than government bonds because, if businesses grow, workers also increase and the country grows and in a healthy way.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/borsa-di-milano-considerazioni/ on Sun, 14 Jan 2024 06:37:52 +0000.