LIVE MARKETS-Why Italian SMIDs will outperform in 2025

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WHY ITALIAN SMIDS WILL OUTPERFORM IN 2025

A disorderly rise in bond yields is now the top concern for global investors and that's unlikely to be of any help for Europe's small and mid-cap stocks (SMIDs), which typically have larger exposure to floating-rate debt.

That might be true also for Italian SMIDs, which are still struggling after three consecutive years of underperformance relative to the country's blue-chip FTSE MIB .FTMIB index.

Over the last month, the FTSE Italy Mid-Cap and Small Cap indices have lagged by 4-5%.

Despite the sluggish start to the year, Italian investment bank Intermonte believes the space will stage a comeback, boosted by the state-backed National Strategic Fund's plans to invest in domestic SMIDs, and the country's political stability.

"This trend should reverse in 2025: in a scenario of steadily declining interest rates, a rebalancing of portfolios toward growth stocks is likely, and in Italy these are concentrated in the mid/small cap segment," Intermonte's research team writes in a note this week.

"As ever, liquidity will remain very important: some mid/small cap funds have suffered from poor inflows after weak performances, but we think foreign investors may increase their investments, especially in light of relatively greater political stability than elsewhere in Europe," they add.

Intermonte believes the National Strategic Fund could harness private and public capital for up to 1 billion euros initially, helping reverse the fund flow bleeding.

More LIVE MARKETS blogs looking at SMIDs:

Rates risks: caution on utilities and small caps

Higher yields bad news for European small and mid caps

(Danilo Masoni)

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