Quarterly column 5 – June 2023

How to revitalize the Italian Capital Market? The recurring discussion has reached the point of becoming repetitious. The overwhelming dominance of traditional bank lending, the lack of a solid domestic investor base and the absence of strong local intermediaries are issues which are yet to be overcome.

Indeed, 2022 was a tumultuous year around the globe, marking the starting point for a dramatic change in the financial and macroeconomic scene. This was largely due to geopolitical tensions, a new inflationary scenario, and the quantitative tightening of central banks worldwide. These factors put an end to a period of inflated prices on almost all financial assets, with immediate and painful effects on Italian capital markets. In fact, the FTSE Mib Index lost 13.3% year-on-year, market capitalization dropped to about €620 billion, and the ratio of the Italian market capitalization to GDP decreased to 33.9%. Additionally, the trend of new admissions on the different segments of the Italian stock exchange was equally bleak, with only 30 in 2022.

However, the changed macroeconomic scenario offers a unique opportunity to reimagine and rebuild the capital market infrastructure, securing a foothold for Italy and the EU on the path toward a full post-pandemic recovery. Two developments could trigger a real relaunch of capital market circuits in Italy: the MEF Green Book and the proposed EU Listing Act, and the National Recovery and Resilience Plan (NRRP).

The European Union has intensified efforts to strengthen capital market circuits, with a special focus on SMEs. This recognition of the importance of capital markets has led to the creation of a task force coordinated by the Italian Minister for Economy and Finance, along with the publication of a Green Book on the competitiveness of the Italian capital markets as a form of support for growth. A further push toward the creation of the Capital Markets Union (CMU) is the proposal of the EU Listing Act, with the objective of harmonizing listing rules in the European Union.

In 2021, the Italian Government launched the NRRP, which can count on a substantial budget of €235 billion, with €62 billion earmarked for the Ministry of Infrastructure and Sustainable Mobility alone. The impact of the NRRP has produced significant effects on Italian capital markets, albeit not always in the direction foreseen by the reforms cited above. In fact, 2022 was the year for large transactions, often sponsored by private equity, in the transportation, energy, and telecommunication sectors. While these deals do not contribute directly to the development of capital market circuits, they will definitely have a positive effect on the economy in the long term. In this situation, marked by both positive and negative factors, the Italian financial markets have a unique opportunity to play a significant role in driving the recovery efforts following the pandemic. All of these factors have led us to closely monitor and compare Italy’s position to other major European countries. The performance of the capital market and the impact of listed companies on the overall economy are essential to the fate of the country.

To this end, developing an ongoing Scoreboard and publishing an annual report with relevant analysis have become critical tools. The second edition of the Capital Markets Scoreboard not only advances public discussion but also highlights both the strengths and weaknesses of Italy’s economic policies that must be addressed in order to improve, also drawing on inspiration from foreign best-practices.