News

This week, the new Italian Prime Minister Matteo Renzi faces votes of confidence in his new government following his ousting of erstwhile party leader Enrico Letta. He passed the first hurdle on Monday, having gained the backing of the Senate, and meets with the lower house on Tuesday. Renzi is seeking to reinvigorate a reform agenda that lost its edge in recent months. He is likely to focus on electoral law and also labour market and tax code reforms but will need strong support from the grand coalition members in order to implement what is an ambitious programme.

Full of charisma, Renzi is Italy's youngest ever Prime Minister and his cabinet is also the first in the country to be balanced equally between men and women. Expectations are clearly high, with market reaction to the fall and replacement of yet another government in Italy so far more positive. Italian 10-year bond prices rose to their highest levels since 2005. Even as Letta was forced from office, Moody's were moved to revise their outlook from negative to stable, citing the government's financial strength and the levelling off of debt. A successful reform programme would likely result in an upgrade, which would be positive for the country's growth potential and, in turn, the earnings prospects for companies focused on the domestic economy.

Against this improving backdrop, we remain positive on the outlook for European equities. More specifically, we increased our weighting in smaller companies, which tend to be primary beneficiaries of an improvement in the domestic economy.