Investor Fears Ease Ahead of Italian Election

Asset managers believe support for Italy’s populist Five Star Movement will have little impact on markets, even if the party wins the largest vote share.

Antonio Ruggeri (left), senior portfolio manager at SYZ Asset Management and Azad Zangana (right), senior European economist at Schroders

Antonio Ruggeri (left), senior portfolio manager at SYZ Asset Management and Azad Zangana

(right), senior European economist at Schroders

As Italy’s general election approaches, fund managers say they’re not worried by the populist Five Star Movement now leading the polls.

Italian national newspaper Corriere Della Sera reported Wednesday that the country’s election would take place on March 4, 2018, ending months of speculation about the date. An opinion poll conducted by research group Tecnè a day earlier had shown the Five Star Movement leading the polls, offering the prospect of a populist party winning the largest vote share.

But after the 2017 general elections in France and Germany, where populist candidates underperformed other political parties, fund managers say investors are less concerned about a surge in Europe-wide populism harming markets.

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Milan-based Antonio Ruggeri, a portfolio manager at SYZ Asset Management, told Institutional Investor that while investors may witness some volatility and a widening of Italian bond spreads in the lead up to the election, he does not expect any “major disruption.”


“Investors have enjoyed the Italian rally over the past few years and now may sell a bit so as not to face the volatility from the elections, but we do not expect investors to sell off entirely,” he said. “The current economic environment is very solid in the eurozone and also in Italy.” Azad Zangana, senior European economist at Schroders, agreed, adding that the Five Star Movement, while ahead in the polls, is “still well short” of an outright majority.

New election rules introduced in 2016 require that parties attract more than 40 percent of the vote to gain an outright majority. Otherwise, seats are allocated in a run-off vote.

Zangana explained that while Five Star may win the largest vote share, they are unlikely to govern.

“The difficulty for them is that none of the other major parties are willing to work with them,” he said. “The rest of the minor parties are all polling around 2 to 5 percent. They are not big enough to help push the Five Star Movement over the line. Most people expect the outcome to be a Democratic Party-led coalition with Forza Italia and Lega Nord joining this coalition.” In a client note Friday, Gareth Colesmith, a senior portfolio manager at Insight Investment, explained that the new electoral system is designed to encourage coalition-building. The rule change was supported by the Democratic Party, Forza Italia, and Lega Nord.

“It is clearly designed to benefit these parties at the expense of the Five Star Movement and the smaller parties,” he wrote.