I was in Milan the other week. For a large European metropolis, it surprised me.

Affordable. Stylish. Relatively safe.

We went for coffee and pastries at Marchesi, a 200-year-old Milanese pastry shop now owned by the Prada Group. Their cafè in Galleria Vittorio Emanuele II, with its beautiful Christmas decorations, is an elegant place to be.

I order the caffè corretto. This is an espresso with a shot of grappa. An older gentleman in a uniform and apron prepares it at the bar. Price: €2.50.

 

Source: Author & son

 

Alongside a Christmas holiday, I’m spending a month in Italy to familiarise myself with some of our investments here.

Companies listed on the Milan exchange have been cheaper than their equivalents in the rest of Western Europe, in Australia, and many times cheaper than in the US.

Investors have discounted Italian stocks due to the country’s high national debt, political uncertainty, pension time bomb, healthcare time bomb, and no growth.

Some of these stocks seem oversold.

Like Milan, many of these positions look underrated and could provide beautiful value.

Could this be a unique opportunity in 2025?

 

Italy is the world’s eighth largest economy

 

Despite negative demographics and government debt, it is growing again.

Italy’s location has always been pivotal, strategically located in Southern Europe. Not only is it in the centre of Europe, for centuries, it has provided links across the Mediterranean to Africa and beyond.

 

 

 

Today, former communist states in Eastern Europe like Poland are growing rapidly. Africa offers the world’s most favourable demographics in an ageing world. Italy is poised to grow its trade and finance.

Now opportunity lies in Italy’s recent history. The economy has been beset by high government debt (almost 140% of GDP) and little growth. As a result, many listed companies are much cheaper than in other developed markets.

This overlooks several factors.

In 2022, Italians elected a right-wing government led by Giorgia Meloni. Over the past five years, taking in the pandemic, the economy still managed to grow 3.8%. In the context of Europe, that’s twice as much as France. Five times more than Germany.

The country still has a population of almost 59 million. The north of the country is one the richest regions in Europe. There is a sizeable consumer market, strong export base, and recent influx of high-net-worth investors.

In my travels, I experience strained infrastructure. Yet also plenty of industry — and from Lombardy to Tuscany, where I’m based, a sense of prosperity.

With further incentives, the Italian economy could easily become more dynamic.

 

For global investors, Italy is now interesting

 

At the end of 2023, Italian stocks were trading at a discount of 50% to other global stocks…

 

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