Wall Street is worth 120 times Piazza Affari: thus the financial markets struggle to support GDP and development

The largest piece of the pie is for the United States. Europe has few crumbs left. Italy receives only a fraction of the latter. The capital market has changed significantly over the last century, but the evidence is that the weight of the Italian Stock Exchange is increasingly reduced. In 1899 Wall Street was worth 8 times that of Italy, last year the value produced was 120 times higher. This is highlighted by the map of the Swiss bank UBS, which has put in black and white the specific weight of the individual stock markets. If it is true that the excessive power of the USA is evident, at times all-encompassing, it is equally true that adverse bureaucracy and more stringent regulations make European markets, including Italy, unattractive for investors. A situation that could slow down the country’s economic development.

At the end of last December, the capitalization of the Italian Stock Exchange was 761.8 billion euros, 39.4% of the gross domestic product. That of Wall Street’s main index, the S&P 500, was 42 trillion dollars, almost double the US GDP. A relationship that has no historical precedent. The gap is widening, given that for the first time in history, the S&P 500 closed – news on Friday – above 5,100 points. In just three months, as can be seen from Bloomberg data, the largest US stock exchange gained 723 billion dollars in capitalisation. In practice, the entire value of the Italian Stock Exchange. As highlighted by Morningstar a year and a half ago, “if we take the Morningstar index of the Eurozone, Italy represents 6.76%, compared to 32.5% in France, 23.8% in Germany and 7, 9% of Spain”. Not only that: “In the European stock basket (Morningstar Europe), the weight drops to 3.1% and in the global one to 0.5%”. Figures that have changed little over the last twelve months. Indeed, with the rush of Wall Street on the wave of technology and artificial intelligence-related stocks, the gap is destined to increase more and more.

The rally of Nvidia, the US chip giant, is an example of this discrepancy. Jensen Huang’s company surpassed the capitalization of $2 trillion two days ago. In other words, slightly less than the daily trades that take place on the Italian Stock Exchange. There were over 6 billion in 2007 alone, before the collapse of Lehman Brothers. What could have represented the destruction of the US stock market, as Wells Fargo analysts said at the time, turned out to be the initial part of a trend that continues today. Almost completely immune to the pandemic, Russia’s invasion of Ukraine, the energy crisis and war in the Middle East.

Something has moved in Europe in recent months, but only in words. The president of the European Central Bank (ECB), Christine Lagarde, has emphasized a more united and integrated EU capital market, capable of competing on an international level. A dream which however clashes with the reality highlighted by UBS. That is, 60.5% of global capitalization is in the hands of Wall Street. For Borsa Italiana the value stops at half a percentage point. Too little, given that at the beginning of the last century it was four times higher.

The Capitals bill, as most legal experts recall, could have brought innovation, but instead the result is doubtful. According to Luca Enriques, professor of Corporate Law at Oxford, “there is no silver bullet”. To fund the capital market in Italy, among others, Enriques points out that “it would be useful to eliminate the tax on financial transactions, de-bureaucratize the processes and mentality of the administrative authorities and review the law of unlisted companies, in order to encourage investments of venture capital”. But the needs do not stop there, as demonstrated by the reports of the legal boutiques commenting on the Capital bill.

There is more. According to Enriques, it would be useful to “foster financial analysis, eliminating MIFID constraints, avoid special treatment for government bonds, whether for tax or ISEE purposes”, as well as reducing state power, as in the case of the Golden Power . “Because the stronger the State is, the more a controlling shareholder capable of keeping it at bay is needed; the less widespread ownership is favored and the less weight companies have on the stock market indices in which passive funds invest”, points out the Oxford expert. Who sees the need to “strengthen the safeguards against the extraction of value by controlling shareholders” and “scrutinize the rules on listed companies and securities markets that have become crowded over the last 30 years, allowing companies to free themselves from them, with the consent of the majority of minority shareholders, where they do not have an equivalent in the main markets”. Last but not least, two other points: “Review the regulatory and fiscal regime of complementary and supplementary pensions, encouraging investments in shares, and favoring the integration of European stock markets, without cutting out the English financial industry”, comments Enriques. Measures that professionals have been asking for for some time.

While in Europe we try to find meaning in a financial market that is too small and fragmented, in the USA it is time for initial public offerings. The latest case is that of Reddit, which is moving towards a valuation of 6.5 billion dollars. On one side of the Atlantic, capital is flowing. On the other hand, they slow down. On the other hand, delistings are accelerating. Not an exciting picture.