Despite gyrations, Italians take to stock market with a flourish

For nearly two decades, it was talked about in undertones, and references to it were followed by an apologetic smile. Capitalism, in many Italian households, was considered a dirty word, and, like other social evils, was kept at bay from the family doorstep. But in the past few years, a radical change has made it commonplace for millions of Italians to twirl their forks listlessly in a plate of pasta while raptly watching the noon or evening newscast for the latest report of stock market prices.

This change has occurred because these viewers are often trying to cash in on the unparalleled stock market bonanza that has seen share prices in Italy more than double in two years. The Milan bourse, one of the smallest exchanges in continental Europe, has made some of the most spectacular gains in the world, even taking into account recent setbacks.

Now more than ever, Italy's fledgling capitalists are sensitive to the fickle ups and downs of the market. Still jittery after share prices took a brief nose dive at the end of May and then stumbled again when the government fell the following month, Italian stockholders are avid for information on their investments.

In fact, interest in the market boom has been a boon to newspapers and magazines. Never before have Italian newsstands displayed such an array of publications specializing in economic and financial news. Sales of Il Sole 24 Ore -- Italy's main financial daily -- have doubled in the past six years. Even the sports daily, Corriere dello Sport, in a tacit admission that watching the stock market has become something of a national sport, began publishing a list of stock prices at the end of July. Thus no one marvels anymore that RAI, the state-run communications network, broadcasts live, daily coverage from the floor of the Milan bourse.

Major economic forces have also been at play in ``exorcising the profit demon,'' as Bernardo Piersanti, head of the National Council of Stock Brokers, describes the development that has brought capitalism in one of its purest forms into the dining room -- the Italian family's innermost sanctuary.

Fueling the nation's hearty appetite for capital investments is an overall robust economy. No longer fettered by high inflation and low productivity, Italian businesses have taken off, taking with them a stock market that had languished since its heyday in the early 1960s.

In Italy, as elsewhere, the stock exchange is seen as a barometer of the nation's economic health. But it was only in 1984, when a law was passed creating the mutual fund industry, that the Milan bourse began registering the clear signs of economic vitality that began showing up in the early 1980s. Since then, mutual funds have collected more than $30 billion, much of it from individual Italian households, whose savings rate is the highest in the world.

Last year's record profits also saw foreign investors scrambling to buy before prices soared. At the end of this February, the first overseas mutual fund with an exclusively Italian portfolio -- Italy Fund -- easily raised $75 million in its first public offering. More than half the money came from Wall Street.

Italy's latest courtship with capitalism has produced some matches, however, that would be considered unorthodox by foreign standards. Chuckling from behind a heavy wooden desk in his office next to the Rome bourse, Mr. Piersanti points Unipol -- Italy's seventh-largest insurance company -- whose May debut on the stock exchange caused quite a stir.

Announced months ahead of time, the sale of Unipol stock prompted hundreds of would-be investors to converge in downtown Bologna. On the eve of the first public offering, they huddled under the arcade in front of the Banco di Roma and waited overnight for a piece of equity in this company.

Unipol is not your run-of-the-mill insurance company. It is no small coincidence that the company is headquartered on Via Stalingrado in Bologna, a city that is one of the Communist Party's traditional strongholds. Unipol is, in fact, the flagship of the League of Cooperatives, a rapidly expanding empire of mainly Communist-run businesses. Unipol's entry in the world of high finance is destined to remain a symbol of capitalism's success in winning even the most recalcitrant converts.

Another incident that has entered the annals of stock market lore took place at an art auction in Milan 10 days after the Unipol sale. Among the bidders for a 19th-century painting -- depicting a crowd of fierce-looking workers on the march -- were the powerful Agnellis of Fiat, the carmaking giant. But the Agnellis were outbid by Angelo Abbondio, an accountant who bought the painting for $1 million. Mr. Abbondio heads a highly successful company that manages a mutual fund only for stockbrokers.

The irony of the situation -- a group of consummate capitalists competing for a painting that champions the proletariat -- was lost on no one.

In retrospect, the timing of Abbondio's bid seemed ill fated. It came the week the Italian stock market took its biggest one-day loss in recent history. On May 29, a day that is referred to ominously as ``Black Thursday,'' the Milan all-share index fell 9.82 percent, bringing the week's total losses to nearly 20 percent.

Scenes of panic were widely reported across the country that day. Mario Beretta, a financial consultant at the main branch of Banco di Roma, remembers one customer who was on the verge of fainting, ``because he had invested a small fortune for his father-in-law.''

Overall, Mr. Beretta says, the heavyweight and small investors reacted in a predictable fashion. Institutional investors, who in part triggered the sell-off by unburdening shares at the beginning of the week, stepped in to cushion the price fall as small investors beat a fast retreat.

A number of factors, including increasingly hostile skirmishes in the governing coalition and talk of excessively inflated share prices, conspired to break a euphoric mood that had kept investors spellbound for 18 months straight. What really seemed to frighten investors, however, was the prospect of a capital-gains tax, perhaps even a retroactive one, being slapped on hitherto tax-free windfalls.

The market began a slow recovery after the specter of taxes was lifted less than two weeks later. In the aftermath of the mini-crash, more than one analyst saw it as helping the market. A leading economist, Luigi Spaventa, says that it helped ``let air out of a speculative bubble'' by purging the market of those ``who wanted to turn over a 100 percent profit in three days.''