ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Markets muted as polls get Italy vote right

European markets were largely unmoved on Monday morning despite the Italian electorate’s decision to reject Prime Minister Matteo Renzi’s call for constitutional reform.

A No-vote had largely been priced into the market and, for once in 2016, the polls represented the reality; Italian government bond spreads initially widened but moved quickly back toward last week’s levels. Meanwhile, European stock exchanges are trading largely in the black as well, with only the Italian FTSE MIB index marginally down.

“There is clearly no panic or strong flight to the safest assets,” said Hans van Zwol, senior portfolio manager global fixed income at NN Investment Partners, “Due to worries about some weak Italian banks, spreads of financials are wider, but also here we do not see a very strong move.”

David Simner, fixed income portfolio manager at Fidelity International agreed that financials will remain in the crosshairs as the vote will have a bearing on the upcoming recapitalization exercises by Montepaschi and Unicredit.

“We expect volatility ahead, until more details become available. However, it will be equities, rather than fixed income investors who will bear the burden of further rights issues on the horizon,” he added.

Unlike in the case of the Brexit vote, the Italian electorate’s decision means the status quo remains for now, albeit with a change in prime minister, as Renzi resigned shortly after the referendum results were announced. This of course raises the prospect of early elections in the country, although many analysts expect instead to see a caretaker government set up to tide things over.

Market attention will undoubtedly shift first to the banking system and then to the ECB meeting on 8 December for any signs of change. But, many are also expecting to see some buying opportunities as a result of the increase in volatility.

As Jon Jonsson, senior portfolio manager, global fixed income, Neuberger Berman, said the decision will not only reduce confidence in the recovery of the Italian economy: “It will also likely increase uncertainty stemming from rising euro scepticism across the euro area… Indeed, it will likely negatively impact Italian government bonds and risky assets in Europe. As we saw after the US election and the Brexit vote, however, markets could fully price these developments sooner than expected and reach oversold levels. We believe patience is key and that there may be opportunities to use any substantial sell-off to buy attractively priced assets.”

MORE ARTICLES ON

  • Can M&A and buybacks breathe life into UK market?

    Can M&A and buybacks breathe life into UK market?

    Both buybacks and M&A should help realise value in UK shares, boosting prices and giving investors another reason to consider the UK stockmarket Not only does M&A activity appear to be picking up, with a high-profile bid for UK electronics retailer Currys, but the scale of company buybacks continues to accelerate. If it goes well,…

  • Capital Group launches multi-thematic Article 8 funds

    Capital Group launches multi-thematic Article 8 funds

    Capital Group has launched a set of multi-thematic sustainable funds that are available for investors in Europe, writes Christian Mayes. The Capital Group Sustainable Global Opportunities fund (LUX) will invest in global equities, while the Capital Group Sustainable Global Corporate Bond fund (LUX) will target fixed income exposure. The launch also includes a multi-asset offering…

  • Bond funds pull in €29.7bn in January – LSEG

    Bond funds pull in €29.7bn in January – LSEG

    Bond products were the best-selling asset class in January, according to LSEG Lipper’s European Fund Flow report, writes Christian Mayes. The asset class pulled in a net €29.7bn in the month, while Money Market USD grouping was the best-selling Lipper Classification after receiving €11.2bn inflows. Providers of mutual funds pulled in €22.5bn, while passives saw net…

  • Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    A quarter of all Article 8 funds could be accused of greenwashing based on their sustainability framework and practices, according to MainStreet Partners, writes Christian Mayes The 24% of funds classified as a greenwashing risk by the 2024 ESG Barometer report marks a four percentage point increase from the 20% flagged at the end of…

  • EU green rules could stymie decarbonisation projects – ExxonMobil

    EU green rules could stymie decarbonisation projects – ExxonMobil

    The European Union’s climate regulations may lead to it halting its investments in Europe, ExxonMobil has warned. Speaking to the Financial Times, Karen McKee, president of the product solutions division, said the oil and gas giant had struggled to begin decarbonisation projects in Europe due to the regulatory burden. The result, she added, was that…

  • ICE flags need for Europe to double green investment

    ICE flags need for Europe to double green investment

    Investments to modernise energy and transport must double by the end of the decade to reach 2030 climate targets, the EU has been warned. According to the Institute for Climate Economics (ICE), which has released the European Climate Investment Deficit report, the bloc lacks what it calls a “consistent tool” to ensure monitoring of the…