Silvio Berlusconi is back and the right wing 5 Star movement is up in the polls as Italians prepare to hit voting booths on Sunday, but how important will the national election be for the stock market?
Most expect the eventual result will return a hung parliament in a nation divided between the democratic centre right groups and the more extreme 5 Star movement.
Combined, the centre-right parties command 38 per cent of the vote and have already struck a pre-election coalition.
Mike Buhl-Nielsen, manager of the Jupiter Europa fund, has labelled the election one of the most ‘unpredictable, controversial and important votes of the year’ in Europe, and one that could move markets for the better or worse.
The competition between political parties has been fraught with ideological factions on both sides protesting at demonstrations in the run up to Sunday’s vote
The risk of the 5 Star movement gaining a sole majority remains unlikely, as is the chance of any other single party getting enough support to rule alone.
A result where one party could rule alone would be enough to shock markets according to Rathbones Bank investment chief, Julian Chillingworth.
In a measured analysis of the election and its impact, Chillingworth has come to the conclusion that no matter what, business should continue as usual.
‘Anybody winning a majority would be a shock for markets,’ he says.
‘I think they will be reasonably relaxed if we have a coalition government, and that seems the most likely result. The market will then be much more interested in what is deliverable from the election promises.’
He added: ‘There’s a lot of noise around the election but I think it is likely to be business as usual.’
Similarly, Fabrizio Quirighetti, the co head of multi-asset investments at SYZ Asset Management, believes markets could react negatively to a hung parliament at first but that any impact would be ‘marginal and short lived’.
81-year-old Silvio Berlusconi (pictured) remains a huge force in Italian politics but is barred from becoming Prime Minister until 2019 due to a charge for tax fraud
‘We would most likely see a slight negative reaction from markets in the first instance, but not a sense of panic, since on the one hand Paolo Gentiloni would remain at the helm and, ultimately, if the centre-right and centre-left parties join forces, that would certainly be the best possible scenario,’ he said.
The centre-right parties, Forza Italia, Lega Nord, the Brothers of Italy and Us with Italy have forged a pre-election coalition ahead of Sunday’s vote, the biggest single bloc in Italy with an expected 38 per cent share of the vote.
While the centre-left coalition is set to receive around 26 per cent of the vote, the 5 Star movement has refused to be a part of the right-wing team.
Italian Prime Minister Paolo Gentiloni (pictured centre) has taken part in anti-fascist marches organised by the Italian left-wing parties in the run up to the election. Centre right and right-wing parties are expected to dominate at the polls on Sunday
The most widely expected result is a coalition of centre-right movements with Berlusconi’s party, Forza Italia, at the centre.
Scandal-struck Berlusconi may be banned from becoming Prime Minister until 2019 due to a court order for tax fraud, but he has been unofficially backing European Parliament President Antonio Tajani as his favourite to take it in his place.
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Miton European Opportunities Fund
Managed by Carlos Moreno and Thomas Brown, a chunky 15 per cent of this £199.6m fund is dedicated to Italian stocks.
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Allianz European Equity Dividend
The Allianz fund has a smaller 4.6 per cent allocation to Italian companies and has returned 57 per cent in five years.
Artemis European Growth Fund
The £218.3million Artemis fund has a solid 10 per cent allocation to Italy and has returned just over 100% to investors over the past five year period.
Aviva Investors European Equity Fund
The Aviva European fund is 7.4 per cent invested in Italian stocks.
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AXA Rosenberg European Fund
The smaller AXA European fund has £21.2m in assets and has a 6.6 per cent exposure to Italy.
It has returned around 62 per cent to investors over the last five years.
The 81-year-old billionaire remains a power force in Italian politics, having held office three times as one of Europe’s most recognisable leaders.
Charles Stanley’s chief global strategist John Redwood said the process of creating a new government would shake markets, but then uncertainty could quickly recede.
‘The short term election results and uncertainty over government building may trouble markets a bit. A reflationary lower tax policy if followed might then rally spirits about shares, and would be in line with policy in the US,’ he said.
Market commentators will await the election results intently, questioning whether the complacency which greeted a swathe of European elections in 2017 has fully given way after volatility returned with a bang during the global stock sell off in January.
For investors, Italy is ‘worth considering’ according to Lloyds Private Bank chief investment officer, Markus Stadlmann.
He favours Italian stocks and says they could be worth considering as an investment for those with a high appetite for risk and a long-term view.
‘While the results of the elections are hard to predict, we can assume that the new government will strive to increase fiscal stimulus to boost the solid cyclical upturn the Italian economy is currently enjoying,’ he said.
‘This upturn is being led by exports and flowing through to domestic production and business investment. Consumer price pressures also remain fairly subdued, given the level of unemployment.’