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
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.
[II Deep Dive: The Globalization Backlash Poses a Big Risk to Markets]
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.
Hello, my name is Jack Sparrow. I'm a 50 year old self-employed Pirate from the Caribbean.