Italy

We all know the short term noise, the ever glooming hard Brexit, the USA-China tradewar, stalling global economy and of course Italy’s current financial state. Let’s take a closer look at Italy. What is happening there, and how could we as investors benefit without taking too much risk.

What is happening.

The current issues come down to an extreme high national debt, far beyond the limits set by the EU, also Italy’s unemployment numbers are one of the worst of the entire EU. For measure let’s take my home country of The Netherlands. In 2017 the debt compared to the national GDP (Gross Domestic Product) for Italy was 131,8%. In The Netherlands it was ‘just’ 56,7%. Also the unemployement rate for Italy in December 2017 was 10,9%, whereas The Netherlands had, again ‘just’ 4,4%.

Italy is a volatile country, where in the last 70 years they had around 65 governments, before a government can make a substantial change they are replaced and I strongly believe that even following a bad plan, is better than following no plan. Finding a job is especially hard on the young Italians as the unemployement rate for them is around 31%. These are the substantial problems Italy currently has.

Of course they just selected a new government which is believed to bring some fresh energy. Yet they have been quite sceptic about the EU and it’s regulatory rules. For instance they care little for budgetting while this should be a high priority according to the EU. The difference of opinions on the national debt, cost cutting and financial markets is what makes Italy one of the weakest links in all of Europe right now. Just look at the interest rates for bonds in Italy to see how investors think about this country:

Italian yields

Italian bond yields ranging from 3 months to 30 years. Source: www.marketwatch.com

Well, DutchIndependence is no blog to discuss global financial trouble, like the current state of Italy. So I’d like to swing this post around to how we could all stand to benefit from the current trouble Italy is having. Let’s have a look.

How could we benefit from all this.

The easiest option would be to start acquiring ETF’s with Italian companies, as a long term investor you should still be able to make quite a bit of money from the current weakness. Businesses are in more danger than elsewhere in Europe maybe, but big banks, car makers, and fashion brands will not all of a sudden be out of business. When you spread your risk over the entire MIB index you should be fine long term. Who doesn’t like a temporary discount to invest for higher returns in the long term right?

Currently the ETF yields 3,97% and it has a expense ratio of 0,49%. It’s a bit expensive for an ETF, but for people believing in Italian companies, you are creating simple exposure to the 30 biggest companies of Italy in a passive manner.

You could say that this investment strategy could be applied to China for better results, as there are more high growth companies combined with more people and higher economic growth as well. But for people who think China is a bit too far away to invest their hard earned money into, Italy may offer a decent alternative.

iShares EWI performance and top 15 holdings.

The performance over 10 years of the iShares MSCI Core Italy ETF.

Top 10 high yield stocks.

Another idea could be some high dividend stocks, as you could imagine, Italian stocks have been hit quite hard and this pushes their dividend yield up. Down below you’ll find the top 10 yielding Italian stocks.Top 10 high dividend stocks in Italy

I realise that these ideas are quite out of favor and not a lot of people are eager to start investing in Italy. Yet I personally think the country will be alright in the long term. It’s one of the biggest economies of Europe and a lot of their companies are solid. The current government debt is worrying and the budget of the new government isn’t all to promising on reducing the debt either. But companies should be able to prosper in the long term, if you are willing to take a little more risk now, or soon when prices tumble even further I think you could make some good money on the current Italian crisis.

Have you ever looked into investing in Italy, and if so do you have any alternative ideas; make sure to let us all know in the comments!

Happy investing!

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4 Comments

  1. Never really considered an Italy option for my own portfolio though E might be an interesting energy play. Italy, Greece, Spain, Portugal, Ireland have all seen major economic crises come and go over the years and especially a lot in the recent decade. I have enough noise and issues to deal with when looking at my U.S. companies and others I hold abroad. I’ll pass on Italy 🙂

    • DutchIndependence

      I can imagine, the stock market right now offers plenty of value in great names in the US too, no need to look for a riskier place. But it’s good to know about your options haha! Thank you for your comment DH.

      DI

  2. Excellent post on Italy, thank you!

    I had never thought about investing in Italian companies, however you have got me thinking now. I’ll be doing some more investigation.

    Just found your site and enjoying the read so far.

    Keep up the good work!

    Cheers,

    Mark

    • DutchIndependence

      Thank you Mark! It’s always nice to hear that you make people think. I’m glad to have you as a new reader and I thank you for your comment!

      DI

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