Morning All.
Worrying developments in Italy overnight as Prime Minister, Giuseppe Conte, signs a decree to limit movement in more than a dozen provinces and this very much resembles the kind of quarantine efforts we saw in Hubei province, China last month.
This reportedly effects a quarter of Italy’s population, meaning about 15 million people, and includes the financial hub of Italy located in Milan.
These lock-downs are occurring in the north of Italy, and Italy borders with France, Switzerland, Austria and Slovenia.
There is substantial cross-borders integration with all countries being EU members, these borders are open, and this will further the impact this move will have on the region.
There is also the risk of people fleeing the lock-down into neighbouring countries, increasing the risk of the virus spreading further.
It’s hard to imagine that this will not cause a major rethink of how serious the COVID-19 outbreak is to Europe and I think that stock markets could take this quite badly tomorrow once the exchanges open. It’s amazing, but reading many news articles yesterday I repeatedly saw this referred to as the ‘Coronavirus scare’, almost attempting to reinforce the perception that it’s not really happening.
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With Italian GDP growth for 2020 already forecast to be a meagre +0.54%, it’s highly likely that revised forecasts will now see such forecasts move towards a potential contraction. Italy is the 4th largest economy in the EU and while it does not carry the importance of Germany, it’s vital link in the chain of EU trade and could easily cause knock-on effects.
I have two Italian stocks in the portfolio at the moment, one being a core position which I normally add to on dips. Prysmian [BIT: PRY] are a very international company in a sector that has good growth so I’m not concerned about the long term but I will not take any additional positions in them while the country deals with such a crisis situation. I expect the share price to fall with the market and will keep a track of it. Maybe on the day they announce the lifting of these lock-down measures I will consider an additional position, depending on where price is at that time.
Looks like we have another volatile week coming up.
Thanks for your time.
