Milan Stock exchange is growing… but with effort. The four-monthly report on stock exchange trends (2004)

Are terrorist attacks like insider trading? This is the equation of terror, which Eurispes wanted to verify in its sixth report on the performance of the main stock exchange markets. To achieve this objective, Eurispes calculated the variations in the indices after the terrorist attack in Madrid on March 11 2004, taking the day before the attack as the point of comparison. As expected, European stock exchanges reacted more strongly to the terrorist threat, with negative changes ranging from a minimum of 3 points for the City of London to a maximum of 4 points for Frankfurt, which is more exposed than others to the Spanish situation due to the presence of strong German investments in the Iberian peninsula. The effects on Wall Street were moderate. However, in the following two weeks, Wall Street even recorded slight increases (+0.6% for the Dow Jones and +1.6% for the Nasdaq), while Tokyo was utterly unaffected (+2.4%). Eurispes, in its four-monthly Report on the trend of the Stock Exchanges, went back in time to verify the effects in the brief period of the first and most severe Al Quaeda attack, that of September 11 2001, on the Twin Towers of New York. Curiously enough, even three years ago, the European stock markets reacted to the attack with more emphasis than the American stock market, which, in the days immediately following the attack, suffered minimal losses, all in all, part of what was then a downward trend. The same reasoning does not apply to the European stock markets, which suffered heavy losses in just six days: -6% in London, -12% in Paris, -13% in Frankfurt and Milan. At that time, the attack was part of a general downward trend, accentuating the fall. On the other hand, March 11 2004, was part of a broad, long-term positive trend on the leading international stock exchanges, reversing the trend.

If proof were needed, the figures show the influence of the great terrorist event on investors’ moods. The exact figures show that the direct effect of the massacres hit the European stock markets harder than the US market, which in turn was more sensitive than the Japanese market, where the results were less severe. Among European stock markets, London appears less emotional than Milan, Paris and Frankfurt. The effects of the attacks fade reasonably quickly over time and, if it is possible to conclude just two cases, they would appear to have disappeared within two to three weeks. The impact of the terrorist event on the stock exchanges offers opportunities for great capital gains to those who know in advance the date of the massacres of the insider trading type. Both on September 11, 2001, and on March 11, 2004, if those who had large portfolios at their disposal would have sold the day before the attack, at high prices, buying the day after at much lower quotations and keeping the securities for thirty or forty days, they would have obtained, on the continental markets, increases in the capital of the order of 10%-15%.

As far as Piazza Affari is concerned, Milan, with an increase of just under two percentage points (+1.9% for both Mibtel and Mib 30), closed the four months (November 2003 – March 2004) with a growth that was not exciting, but certainly unexpected, considering the depressing effects of the Parmalat affair and the fact that our Stock Exchange was the most sensitive (after Madrid, obviously) to the March 11 massacre, due to the geographical proximity and alignment of our Country with Spain in terms of international politics.

Following the leading world Stock Exchanges and after overcoming the combined effects of the global economic slowdown, the Italian Stock Exchange is still showing signs of recovery, despite the downturn in recent months. The trend, however, is not the same for the various sectors of activity of listed companies.

The analysis also provides data on the performance of the three main sectors: industrial, services and financial. Thus, the good increase in the general index over the twelve months (+22.2) is split into an appreciable rise in financials, which improves on the figure recorded in November, the good result of stocks in services companies, but above all signals a strong recovery in industrials, which finally realigned themselves with the positive trend of the other sectors, after a standstill in previous periods.

However, not all three sectors are showing a positive trend in the last four months, with a positive performance for industrials (+4.5%), and a more satisfactory one for services (+8.8%), but with a strongly negative signal (-3.2%) for financials. Moreover, the Milan Stock Exchange is still heavily impacted by the losses accumulated in past years, showing how industrial stocks have held up better than in 2000. Finally, while financial stocks are still 29% down on their values of three years ago, and services stocks are down 50%, industrial stocks are “only” 20% down.