Buffett Indicator: Italy Stock Market Valuations and Expected Future Returns

Updated at Sun, 24 Jan 2021 20:30:05 -0600
Country: Italy (updated daily) check out Global Overview for detailed methodology.

The Stock Market is Modestly Undervalued.

Ratio of total market cap over GDP: Recent 20 Year Maximum - 43.28%; Recent 20 Year Minimum - 9.36%; current - 14.72%
Expected future annual return: 6.3%

ETF Used for dividend yield: EWI (Yield=1.57%)
Market Index used: FTSE MIB
Current Annual GDP: $2,188 billion US dollars or 1,797 in billions of national currency (GDP in Local Current Prices Annual Growth=1.22%)
Data since year 2000

Italy Historical GDP Growth

Historical GDP of Italy in billions of national currency. The GDP in local current prices has grown at the annual rate of 1.22% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP: $2,188 billion US dollars or 1,797 in billions of national currency.

Italy GDP (Billion, National Currency)

Historical Stock Market Cap

Historical total market of Italy in billions of national currency. This value is normalized using the data published by WorldBank. FTSE MIB is used for the normalization. The index consists of the 40 most-traded stock classes on the exchange.

Italy Total Market Cap (Billion, National Currency)

Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Italy is 14.72%. The recent 20 year high was 43.28%; the recent 20 low was 9.36%. If we assume that the ratio will reverse to the recent 20 years mean of 19.35% over the next 8 years, the contribution to expected annual return is 3.48%. This is the detailed historical chart of the ratio.

Italy Ratio of Total Market Cap over GDP (%)

Based on these historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / GDP Valuation
Ratio ≤ 14% Significantly Undervalued
14% < Ratio ≤ 17% Modestly Undervalued
17% < Ratio ≤ 21% Fair Valued
21% < Ratio ≤ 25% Modestly Overvalued
Ratio > 25% Significantly Overvalued
Where are we today (2021-01-25)? Ratio = 14.72%, Modestly Undervalued

Predicted and Actual Returns

From the equation presented on the U.S. market valuation page,

Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1

We can compute the predicted and actual returns of the Italy stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below. The green line indicates the expected, or predicted return if the market ratio trends near the recent 20 years average ratio of 19.35% over the next eight years.

The blue line indicates the actual, annualized return of the Italy stock market over eight years. We use “FTSE MIB” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the blue line is closely parallel to the green line.

Predicted and Actual Returns of Italy


The stock market of Italy is expected to return 6.3% a year for the coming years. This is from the contribution of economic growth in local current prices: 1.22%, Dividend Yield: 1.57% and valuation reverse to the mean 3.48%.

This is the projected return of the stock market in Italy relative to other countries. Click on each bar in the chart to go to other countries:

You can go here to see what international stocks Gurus are buying.

Add Notes, Comments

If you want to ask a question or report a bug, please create a support ticket.

Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)