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For Milan stock exchange a negative decade, despite a remarkable performance by industrials stocks

by Antonella Olivieri

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Piazza Affari is the only one of 23 stock exchanges to have a negative performance since the end of 2004. The Italian Stock Exchange has lost an average 2.6% per year, meaning investors who bet on the Milan market in less than 11 years have seen their capital shrink by a quarter.

The data emerged from the latest edition of “Indices and data,” an analysis of the stock markets by the research center of Mediobanca. The report shows that Shanghai, despite the selloff suffered since June and which burnt 35% of capitalization, is still the best performing stock market in the world, with average annual gains of 14.1% since the end of 2004, meaning an investment made that year multiplied by 4.2 times.

Industrials pay off
On a closer look, the performance of Piazza Affari over the past 20 years shows an uneven performance among the sectors.If in 20 years banking stocks have reported nine years of gains, and insurance stocks have risen for 12 years, industrial shares have performed well over the entire period. The average annual performance of industrial stocks in Milan dealings over the past 20 years is of a comfortable 8.5% growth, which in combined terms makes a 404% growth, compared with 137% of the banking sector (with an average annual growth of 4.5%). Savings shares performed better than any other equities, with average yields of 10.3% per year as to October 16.

Dividend yield
If in the nine years between 2004 to 2012 the average dividend yield of stocks listed in Milan was of 4.6% (5.2% for industrial stocks), this year the performance has been more contained, at 2.7%. Insurers have bucked the trend with a dividend yield of 3.7%.

Best/worst performers
From early 2014 to mid-October 2015, the Italian market gained 18%, with three stocks out of five recording a positive performance. The best stocks in the period were Mondo tv (+650%), Digital Bros (+394%), DeLclima (+249%), La Doria (+187%), and Biesse (+172%). The worst performers featured Seat (-98%), Carige (-72%), Trevi (-68%), Mps (-63%) and KR Energy (-61%).
In the long term, insurance group Generali tops the list of the best performers. An investment in the Trieste-based group made in 1938, excluding dividends, would have yielded, net of inflation, 4.7% per year on average, against 18% of the general index. Among the stocks continuously traded since 1984, the best is IntesaSanpaolo which gained an average 11.9% in the period.

The price/earning (p/e) ratio in Milan is at the highest levels in a decade, with an average p/e of 25.8 times compared with 20.2 times in 2004-2015. Industrial stocks have a higher p/e ratio of 26.9 times. The price to book value is close to pre-crisis levels.
At an international level, the multiples of European blue chips are lower than in the US.

Treasury bills
In general, the Italian stock market would have ensured higher average annual yields than Treasury bills in 13 years over 20. In particular, investors who had the courage to buy amid the worst of the crisis would have had a good return: by investing at the end of 2008, they would have enjoyed an average annual yield of 6.8% compared to 1.4% of Italy's BoT. Is that enough to compensate investors for the major risk taken? No, unless they invested at the end of 2011.

The capitalization of the Milan stock market in October stood at €542 billion (equal to 33% of GDP), with two thirds of value coming from the industrial sector (17% for banks, 8% for insurers). The index is not getting bigger: the balance of new entries and delisted stocks in 2015 is negative for two. Borsa Italiana is at the 18th place for market capitalization compared to its international peers.