Fall in Italian shares

«The Economist», 8 aprile 1939, p. 86

It was characteristic of business last year in Italy, as elsewhere, that the Stock Exchange was remarkably quiet. There was a marked and general fall in share values, and the following table of index numbers shows how drastically the prices of certain selected groups have been reduced since 1924:

In the case of this group some shares are at a level which is actually only 30 per cent, of their 1924 value; and to explain these losses, it must be remembered that in this group are included old companies which, for special reasons, have suffered during the crisis enormous capital losses, and whose values will possibly never recover. Shipping, silk, land insurance companies, moreover, live today in a very different world from that of 1924; and shareholders, writing off past dead losses, must be ready to consider, in one way or another, present values as normal.

These, however, are extreme examples of the fall that has taken place. Examination reveals other classes of shares whose value has not fallen so steeply. The next group includes industries whose share-values, at 30-50 per cent, of the 1924 level, remain below the general average:

This group is also very heterogeneous, and runs from rayon, which is a new industry, to the provision of foodstuffs, and to engineering and chemical concerns, which should profit from the self-sufficiency programme.

The general index has fallen to a bare half of the base-index for 1924. True, 1924 was perhaps the most prosperous stock exchange year in the present century; but the fact that shares dealt in on Italian bourses, notwithstanding two legal lowerings of the gold content of the currency unit, average only half the value of 14 years ago, is liable to be interpreted as an indication of the diminished net productivity of joint-stock companies.

It is important, on the other hand, to notice the important industries whose shares have by no means fallen so much in value as the general index. The following group includes industries whose share values, though still below the 1924 level, are above the prevailing general level:

Finally, the picture is incomplete without reference to the small but significant group of industries, the value of whose shares has increased in some proportion to the reduction of the gold content of the lira:

No general explanation can be given of the relatively high level reached by these groups. Water companies enjoy a monopoly, and sugar is highly protected; but as other groups have the same advantages, the real foundation of their improvement seems to be their conservative, exceptionally prudent, management. Financial companies (and ex-railway companies must be classed under the same head) have been able to shift their investments and pick the best securities in the market. They offer to the investing public, therefore, a type of investment which may be compared to that offered in Great Britain by trust companies, and their success points to a more optimistic conclusion than would follow from a cursory examination of the figures quoted above. Capitalists are not bound to remain faithful to investments selected in 1924; if, cutting old losses, they had begun anew in 1935 they would not have fared so badly. True, the general index rose only from 35.3 to 48.8, and is well below past levels; but after a fall of 64.7 per cent, between 1924 and 1935, a recovery of 38.2 per cent, between 1935 and 1938 is welcome.