In 1999 stability, rather than ex-pected high yield, will be the focus for the majority of Italian investors, both pension and mutual funds. We have to bear in mind that the mutual fund market, whose total net assets achieved Ecu367bn as of November 30 (compared to Ecu184bn as of January 1), is still heavily invested in Italian treasury bonds (Ecu191bn), foreign treasury bonds (Ecu61bn) and liquid assets (Ecu25bn). The remaining 24% is equity-invested, the same percentage as of January the first.

As for the stock market, 1998 in Italy has been a fairly good year - very interesting for banks, insurance companies, telecommunications, utilities. We must point out, though that banks and telecoms still cover 40% of the Italian market.

Many 'public' companies - mostly those belonging to municipalities, ie water, electricity and milk producers plus some banks and ALITALIA - are expected to go 'public' in 1999. This will help the growth of the Italian equity market as a whole, which has grown in terms of capitalisation from Ecu150bn to Ecu430bn over the last 24 months.

The new year in Italy should see in-teresting growth for the utilities and building companies. As for the growth of the companies that are now traded on the market, the competition will be between low rates and low earnings. 1999 is not expected to be an interesting year if we look at the expected bottom line of the profit and loss statements. Low rates might help. Key rates should be steady at 3%.

The most significant economic change of the last few months in Eur-ope and, we imagine, in the whole fi-nancial world, has been the contemporaneous reduction of the key rate by each EMU country. The importance does not lie in the number of basis points taken off from the key rate by each central bank in order to reach a common level - except for Italy - but in the cooperation, trust and activeness that this move has implied.

Low rates can be a symptom of stability or one way to avoid a recession. We think we are facing the first scenario. So their very low levels will push new consumption, which anyhow we do need, will boost the construction industry with its large in-duced activity and stimulate new initiatives in the services sector. All these movements, hopefully, will create new jobs and increase the demand without having any collateral effect on the price side. Raw materials are still at a very calm level.

Andrea Girardelli is investment director at Fonchim in Milan