By Carla Mozee, MarketWatch
Losses piled up Tuesday for Italian stocks, bonds and other assets, all rocked by the prospect that Italians will head to the polls again this year as the country careened towards a collision course with the European Union.
Worries about political instability in Italy ramped up after Italian President Sergio Mattarella on Monday blocked two antiestablishment parties from taking power by rejecting their nomination of euroskeptic Paolo Savona to serve as economy minister. Mattarella then asked Carlo Cottarelli, a former International Monetary Fund official, to work on forming a new government.
Those moves led to calls by Italy’s populist 5 Star Movement and League parties, both of which have expressed anti-euro views, to hold new elections. The two parties had agreed to form a coalition government after the general election in March — seen as the “worst-case scenario” by financial strategists.
The political wrangling in Italy — the eurozone’s third-largest economy — is spurring worries about the stability of the eurozone. Some analysts have said a new general election may be interpreted as a referendum about the euro and membership of the European Union.
Here’s a look at some financial assets that were rattled by Italian politics:
Italy’s equity benchmark
The FTSE MIB index /zigman2/quotes/210598024/delayed IT:I945 +1.55% , which tracks 40 of the country’s large-cap stocks, sank as much as 3.7%, but pared its decline to close down by 2.7%. Still, that marked a fifth straight decline for the benchmark, the longest string of losses since November, according to FactSet data.
The move takes the shine off the FTSE MIB, which Societe Generale noted Tuesday was the best performing major global index between December 2016 to May. Now, the index carries more downside potential than upside, said the strategists.
“Given recent developments, it seems unlikely we will have better visibility in the coming months, particularly if new elections are in the pipeline. As a consequence, we would expect international investors to stay on the sidelines at least until the political turmoil cools,” said SocGen strategists who reiterated their underweight stance on Italian stocks.
Shares of Italy’s largest bank of assets, UniCredit SpA /zigman2/quotes/210598024/delayed IT:I945 +1.55% , were yanked down 5.6%. joining the ranks of the biggest losers on the broader Stoxx Europe 600 Index /zigman2/quotes/210599654/delayed XX:SXXP +1.58% . Also in Milan, stock in Banco BPM SpA /zigman2/quotes/204236087/delayed IT:BAMI +4.19% shed 6.7% Unione di Banche Italiane SpA /zigman2/quotes/200732627/delayed IT:UBI +4.20% flopped down by 4.9%.
A worry among investors is the exposure that lenders have to Italy’s large level of debt. It stands at more than 130% of the country’s gross domestic product. Such concerns extended to other European lenders, leading to a 3.2% slide in the Stoxx Europe 600 Bank Index /zigman2/quotes/210599339/delayed XX:SX7P +3.89% , its steepest decline since August 2016.