Why we SHOULD be investing in Italy!

THE CONTINUING CRISIS IN ITALY MIGHT BE AN OPPORTUNITY FOR INVESTORS, WHO ARE BOLD ENOUGH, TO INVEST SOME (NOT ALL) OF THEIR CAPITAL BACK INTO THE COUNTRY RIGHT NOW!

But before I get carried away, it is worth clearing up the bad news. The practical and rather unsettling news is that the European crisis is far from over.  Mario Draghi delayed, or should I say deflected the financial markets  away from the EU in 2012, by saying that the European Central Bank would support the Euro whatever it takes (and financial markets reacted favorably)   The problem is that behind all great rhetoric there needs to be substance and the sad truth is that little restructuring , or the necessary treatment, has been taken to get ailing European countries back into economic growth. 

One of the simplest measures of that success is to compare the rate of interest a country pays on its National government debt VERSUS its current growth.  In Italy’s case it is has negative growth but pays a high rate of interest back to Bond holders.  In other words the debt is growing and that means less money going back into the economy.  A vicious cycle!

Why then would investing in Italian companies be an option right now?.  The rationale is simple and thankfully we have 3 very recent examples of what is likely to happen in the next phase of the European crisis.

Firstly, as an investor, you have to ask yourself when is the best time to buy (the bottom) and the best time to sell( the top).  Italian stocks, in general, are relatively depressed right now and could be construed to be a good medium to long term buy.   As Warren Buffet is often quoted as saying ‘Be fearful when others are greedy and be greedy when others are fearful ‘.  There is a lot of fear surrounding investing in Italy right now.

And secondly, and the most important factor, is to reflect on the 3 most recent quantitative easing programmes in the developed world and the effect it had on financial markets.  The USA, UK and Japan.  Whether you like it or not the EU will ultimately have to resort to money printing to get pull from this depression.  It is the last and only solution, and as investors we can see what the effect of monetary easing policy has been in each of the 3 countries named above.  The markets in each of those countries SOARED when the decision to print money was taken.  The same effect will happen in Europe when that decision is taken!

Now, I must admit I have no idea when that will happen, nor for how long, how much, or what effect it will actually have.  But, if my guess is anywhere near accurate , those European markets which have been undervalued for a long time now (Italy, Greece, Spain) will see the biggest gains.  When the next phase of the European crisis arrives ( and it could be as soon as 2014) then the move to print unlimited EURO will become more likely.  It might be time to start looking at Italian companies/investments  once again and allocating a small amount of capital to this area of the investment universe.  

And in the process you might be supporting some of the companies which need your help the most right now. 

If you would like to know more about how to manage your investments / money held in cash for a better return / income,  during this difficult economic period, you can contact me on gareth.horsfall@spectrum-ifa.com or on +39 3336492356