Italy and Spain Are The Best Investments

Published by Filipe R. Costa on Wed, 16/01/2013 - 12:17 in

Daily Market Commentary for January 16: What a wonderful start we had this year with all main equity markets rising. The S&P 500 is up 3.2%, the FTSE is rising 3.7%, but none has been as good as the MIB or the IBEX. Confidence in Italy and Spain has been restored and investors are optimistic about the future.

Italy and Spain are under recession and facing very high unemployment rates. Last year was a tough one, with Spain facing serious social unrest, facing several pressures to ask for a bailout, and also being pressured by the European Union and the IMF to apply several austerity measures to avoid the upswing of the current high debt level. At the end, the country survived and investors are optimistic about future prospects. The IBEX 35 dropped 4.7% in 2012 but has now reverted that trend and is up 5.3% in the first 15 days of the current year. The FTSE MIB from Italy, had better luck last year, rising 7.8%, and is now up 7.3% in 2013.

With the current environment we now face, with the threat of a tough period of tough negotiations between the US President and  Congress, regarding the debt ceiling and the fiscal cliff, we may be better off by holding European equities instead of looking into the US market.

The kick off of the earnings season has been mild with the S&P expected to see a growth in profits but with tech companies expected to underperform. That’s an unusual situation but tech companies haven’t been doing very good and the sale of IT has decreased during 4Q. Even Apple, a company that has been flying high is now depressed and investors expect iPhone sales to drop substantially.

The S&P 500 ended yesterday’s session in positive terrain but the tech index Nasdaq 100 dropped 0.46%. This morning, futures are pointing to a negative US open and European equities are also losing steam, as is the Euro. In fact the Euro rose too much during the last few sessions and I believe a level of 1.33 is doing harm to several European countries