The economy in Italy has been shrinking for several years, having a negative impact on the country’s savings and investment market, now Covid-19 is affecting retail wealth. However, Italian investors’ preference for safe-haven products will provide somewhat of a cushion in the 2020 crash, and thus stagnated growth is expected.
At the top of 2019, Italy entered its third recession since 2008. The country’s economic damage has consequently resulted in its retail savings and investment market contracting or halting year on year for the past decade.
Since coronavirus emerged, Italy became the first European country to enter lockdown on March 9, and its economy has been suffering severely ever since the virus was first declared a pandemic.
According to our Retail Investment Analytics, we estimate the Italian retail savings and investment market will grow by 0.2% in 2020. Almost 80% of investor wealth is in deposits, but we expect that many more wealth managers and investors will be moving their wealth into the asset class to protect themselves from the harsh declines faced in riskier asset holdings. Factoring in the government’s decision to suspend mortgage payments for its quarantined citizens, its €25bn ($28bn) emergency decree – which includes €10bn ($11bn) to support families and workers – as well as the move out of equities and mutual funds, we forecast retail deposit holdings to grow by 5% in 2020.
Italy’s retail equity and mutual fund holdings will suffer the most in 2020. The FTSE MIB, the country’s flagship index, lost a fifth of its value in March following the announcement of the coronavirus pandemic and the country going into a complete lockdown.
Since then, April saw the index remain low and volatile, so a slow economic recovery is expected in the country. For 2020, we have lowered retail equity and mutual fund holdings forecasts to -26% and -18%, respectively. The diversification benefits of mutual fund holdings will mean that the fall will not be as severe as equity fund holdings.
However, as mutual fund holdings’ share of the average investor portfolio is five times greater than equities, which hold only 3% on average, the decline will be more pronounced.
In a similar flight to safety as deposits, bond growth is expected to benefit somewhat in 2020 as investors seek out the stable return of fixed-income products. However, our revised forecast remains in negative territory with an expected dip of 3.3% in 2020 (as opposed to the 12.4% decline forecast pre-COVID-19), as the European Central Bank’s €750bn ($842bn) emergency quantitative easing program to prop up the economy will see money flood into fixed-income products, thus suppressing yields.
According to our COVID-19 Tracker Consumer Survey, 45% of Italian consumers surveyed on March 25 expected the coronavirus situation to worsen in the subsequent month.
However, optimism has since grown, and figures from April 22 now suggest only 28% think the situation will worsen. This year will not be the most fruitful for investors and their wealth managers in Italy, but once this crash has passed and the economy begins rebuilding, 2021 is expected to bode well for investors in the country. There is light at the end of the tunnel.