A review of the Italian equity market
In recent years the Italian financial market has enjoyed a boom in equities, exchange-traded funds and securitised derivatives, as many new domestic and international investors have taken advantage of the country's regulatory reforms. In addition, a GDP of €1,535bn (2007) and a total market cap of €252bn (FTSE GEIS, 2009), makes Italy the sixth largest market in Europe.
Within mainland Europe, Italy is well known for having historically high household saving rates and net financial assets. Domestic retail investors play an important role in the country's stockmarket, in terms of capitalisation holding and participation in trading, with 831,000 nonprofessional terminal users, emphasising the large retail market participation.
Approximately 15% of the adult Italian population (around 3.2 million people) invests directly in equity or via equity funds, and retail investors account for 31%1 of the country's total investment in equity markets. The unusually high ratio of retail to institutional investors is helped by a structure that allows.
retail investors to access the trading order book directly. This structure - together with a high liquidity of Italian stocks (with more than 100% turnover), and efficient brokers for retail investors - contributes to this phenomenon. As well as appealing to domestic investors, the Italian equity market is an important component of international investment portfolios.
The Italian structured retail products market is one of the largest in Europe. From 2005 to 2008 it grew at a compound annual growth rate (CAGR) of 16% - from €109bn to €179bn - partly due to the explosive growth of mutual funds. Though this growth predictably slowed during 2008 and 2009, it remains determinedly positive.
Structured products and their distribution are dominated by large Italian banks. Though the ETF industry in Italy is still relatively small, ETFs have experienced a rise in popularity, with around 301 funds and an AUM of €1.06bn at May 2009.This is a substantial increase from September 2008, with 233 funds and an AUM of €.75bn.
| Structured retail products | 2005 | 2006 | 2007 | 2008 | April 2009 |
|---|---|---|---|---|---|
| Total products in Italy | 1,555 | 2,742 | 4,053 | 5,075 | 5,098 |
| Total outstanding volume (€million) | 109,152 | 119,477 | 144,891 | 169,696 | 179,234 |
Source: Structured Retail Products | |||||
The country also has a small but fast-growing derivatives trading market, with €6.8 million index futures contracts and €3.7 million index options contracts traded in 2007. IDEM is among the top European derivatives exchanges: on 8 May 2007 the daily volume of all IDEM products reached a new record of over 451,000 contracts traded2. This growth has been supported by both domestic and international investors, and can be traced back to a decision in December 2006 by the Bank of Italy to relinquish its power over sales and offerings of structured products.
With a strong legacy and emphasis on retail investment, investing in the Italian equities market through index-linked products has been limited in the past. However, as Italy continues to compete on a global playing field - and international investment remains an attractive proposition - the need for indexing as an internationally recognised investment tool has grown. The relevance of passive investment options is being revisited on a global scale, with the present tumultuous global market conditions prompting investors to seek low-cost transparent and objective tools.
In order to make this market solution a reality, FTSE was selected by Borsa Italiana, part of the London Stock Exchange Group, to create a new suite of indices designed to offer greater clarity, transparency and innovation to the Italian equity market. Launched at the beginning of June, the FTSE Italia Index Series is designed to represent the performance of Italian shares listed on Borsa Italiana's MTA and Mercato Expandi markets.
As FTSE currently calculates more domestic blue chip indices than any other global index provider - and works with stock exchanges around the world - we were a natural choice for the Italian market. Our historical presence in London, together with the UK's leading benchmark - the FTSE 100 Index - have ensured an established reputation across Europe.
We are chosen by stock exchanges time and time again for our ability to provide international exposure as well as a globally recognised index methodology and industry classification, helping to increase transparency and attracting international investment flows. By allowing FTSE to undertake the calculations and distribution of indices, these stock exchanges are able to focus on their core business. Our successful exchange partnerships include
the JSE, NYSE Euronext, SGX, Taiwan, Thailand, NASDAQ Dubai, and the Athens Stock Exchange. From 6 July, Bursa Malaysia will also transition the calculation of their historic Kuala Lumpur Composite Index (KLCI) over to FTSE, allowing the 30-stock benchmark to carry all the hallmarks global investors expect from a FTSE-calculated index.
The FTSE Italia Index Series represents a standard and transparent basis for investors to assess, measure and gain access to the Italian equity market. Alongside the new indices, we have also assumed responsibility for Italy's existing blue chip index, now known as the FTSE MIB Index. With our help, Italy's primary benchmark captures around 80% of the domestic market capitalisation, and measures the performance of the 40 most liquid and capitalised Italian shares. The index is designed to be used as a basis for a range of ETFs, tracker funds, derivatives and structured products.
Both the FTSE MIB Index and the FTSE Italia Index Series provide the Italian market with a detailed and flexible set of tools to analyse, track and invest in major capital segments of the Italian equity market. As the series represents 95% of the entire Italian market, it provides an accurate range of benchmarks for both domestic and global fund managers. The index series now also includes a small cap index, allowing investors to capture and create additional investment opportunities in small cap stocks. Now, detailed Italian market data - calculated in line with international standards and covering a range of defined segments and sectors - can be distributed globally on a real-time,and endof- day basis.
Full details of the FTSE Italia Index Series can be found at www.ftse.com/italia. This includes a summary of the indices, volatility and performance and constituent lists. For more information, please email the client services team on info@ftse.com.
Tony Raw,
Managing Director, Europe, FTSE Group.
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