Business World

Tuesday 17 September 2019

Markets spooked after Italian PM Conte calls it quits

Moving on: Italian prime minister Giuseppe Conte, right, is to step down
Moving on: Italian prime minister Giuseppe Conte, right, is to step down

Jan-Patrick Barnert, Justina Lee and Michael Msika

Italian prime minister Giuseppe Conte's decision to hand in his resignation is not helping stressed-out holders of the nation's equities.

Milan's main FTSE MIB Index fell as much as 1.3pc yesterday, before paring its declines to 0.6pc, led by a retreat in Italy's biggest companies, such as UniCredit and Ferrari.

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In contrast, bond holders rejoiced, shining a light on the divide between equity and fixed-income investors in the Italian markets. The impact of Mr Conte's announcement transcends the nation's assets and boosts the political risk for the entire region.

European equities are notoriously unloved by global investors due to a lack of political predictability, among other factors.

After the announcement, investors and strategists had their say on events. Uwe Maderer of Deka said: "The Italian situation continues to be a total mess.

"They have not understood the precarious economic situation in which the country is in. I see nothing positive in Mr Conte's resignation and in new elections in the autumn.

"The only positive sign for Italy is the potential upcoming renewed ECB easing."

Chris Beauchamp of IG said: "His resignation was expected, but perhaps not so quickly. But he has pulled the rug out from underneath (Matteo) Salvini.

"The coalition is probably at an end. It marks a significant escalation in the government crisis and puts the Italian budget in jeopardy. Although if he can cobble together one without the League, it might help to provide a better platform for negotiations with Brussels."

Manish Singh of Crossbridge Capital said: "It adds to uncertainty in Italy, and by extension to the eurozone. Mr Salvini is running high in the polls. If he wins as is predicted, what stops him from pursuing a wholly independent policy that runs against what Brussels wants/likes - flat tax, more spending, higher deficit?

"It will open a can of worms in the eurozone. Were Italy to succeed in bringing growth back on the back of that, the EU will have existential questions to answer, given they are so opposed to his policies."

Stephane Barbier de la Serre of Makor Capital Markets added: "Beyond traditional theatrical antics, what we have seen today on the Italian front has been largely anticipated by markets, which does explain the essentially muted reaction to Mr Conte's resignation.

"Put it this way: a new election is not a done deal yet, and a new government and therefore rejuvenated impetus may precisely be what the country needs at this juncture."

Bloomberg

Irish Independent

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