Utter the words ``Milan Borsa'' and international money managers roll their eyes. Puccini's tragic ``Tosca'' comes off as lighthearted fare next to the blues sung by investors in the Italian market. ``We're still trying to settle on stock we sold over a year ago,'' moans Gavin Dobson, manager of Kemper International Fund. ``The Italian market's like the road to hell: easy to check in, hard to check out.''
``Almost organized chaos,'' says Roger Hornett, head of European research at James Capel & Co., a London-based brokerage firm. Once a strong proponent of Italian stocks, he now avoids them. ``We made 1,800 trades in Milan; only half have been settled within six months.''
Indeed, most brokerage houses in the United States and abroad refuse to trade in Italy anymore. Some are philosophical about the loss: ``Why hassle with it when there are other countries with hot markets?'' one US trader says. But others find it frustrating to be only spectators at one of the fastest-rising markets in the world.
The Milan exchange is the second largest in continental Europe (after Frankfurt, West Germany) and No. 6 in the world. Its market capitalization has risen from $25 billion in 1984 and $60 billion in '85 to about $140 billion today.
Last year, azioni ordinaire (common stocks) on the Milan exchange rose a whopping 130 percent, second only to the 174 percent gain in Austria. This year has also been marked by huge gains, although in recent weeks prices have dipped. The boom has been sparked by three factors, analysts say:
The most stable government in 40 years. Socalist Benito Craxi's coalition rule has wrought level-headed reforms and gained widespread confidence.
An industrial revival brought about by restructuring, automation, and other cost-shaving efforts. The weakening of support for the unions among workers has been a ``social revolution which cannot be overstated,'' says Mr. Hornett at Capel. Industry profits jumped 35 percent in 1984 and 45 percent last year and are expected to rise 65 percent this year.
The introduction of mutual funds in 1984 - free of capital gains and income taxes. ``That totally changed the image of the market and created a surge in demand for mutual fund equities,'' says Hornett. Mutual funds hold $44 billion now, accounting for about 35 percent of trading volume.
``The Italian market has done more than anyone would have believed two years ago,'' explains Franco Desideri, a senior vice-president at Prudential-Bache Securities. ``Such growth so fast has created some problems.''
Among the problems is that there have been two clearing systems - one for locals and one for foreigners. Local trades, as in the US, don't require physical delivery of the stocks to complete a transaction. But trades by foreigners in Italian stocks do.
Also, as trading volume has soared, Italian back office operations have struggled to keep up with domestic orders. Foreign trades got short shrift.
Last week at a New York University conference on the Italian market, Francesco Piga, chairman of the regulatory body Consob (Commissione Nazionale per la Societ`a e la Borsa), sought to allay concerns. Mr. Piga said a new law allows foreign transactions to be settled without physical delivery of the securities. Other reforms are in the works.
``The situation is getting much better,'' says Raymond Stokes, European fund manager at Kemper-Murray Johnstone International in Glasgow. ``With the centralized clearing system, all new trades should operate normally. But settling old trades may still be a problem.''
Mr. Stokes is one of the few managers who have stayed with the Italian market. He bypasses most problems other investors face by ``keeping the chain of command as short as possible.''
He skips the Italian brokers, placing orders through the banks that do off-exchange floor trades and much of the clearing work. ``If you deal through the same Italian bank for both the sale and purchase, it will ensure the trades take place,'' Stokes says. ``He can net off both sides of a trade. If you go through a broker, he's an intermediary. It tangles the communications lines. And he often can't be bothered with whether the bank settles or not.''
Hornett at James Capel agrees that the Italians are ``fairly aggressively trying to make things work.'' But he fears it will be six months before logjams are broken. ``It's not unusual for unsophisticated markets to see this happen when volume goes up tenfold. What is unusual is that it has taken so long to respond.''
Part of the problem, he believes, is bickering between banks. The smaller, more aggressive banks have garnered a sizable chunk of the foreign trades by offering services such as scarce research data on Italian companies. The big banks have responded by delaying settlement whenever possible, says Hornett. ``They're simply not putting enough pressure on the banks to sort out the back office problems.''
But if the glitches aren't resolved, the Italian bull market could stumble. ``Every major market boom over the last 20 to 25 years,'' he says, ``has been brought to an early conclusion by back office difficulties. It happened in the US in '68, in Australia in '69, Sweden in '81-82.''
And with the surge in trading sparked by the sweeping privatization of French industry, Hornett and others wonder if they won't be rolling their eyes a year or two from now at the mention of the ``Paris Bourse.''