• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Financial Services

It May Be Time to Raise Exposure to Italian Assets Ahead of Referendum

Reports of the euro's death are highly exaggerated, again.
By ANTONIA OPRITA Dec 01, 2016 | 08:00 AM EST
Stocks quotes in this article: EWI, UNCFF, MDIBF, ISNPY

Market jitters are running high again ahead of Italy's referendum, due to take place this Sunday, on whether to change the constitution to make it easier for the government to pass legislation.

A "yes" vote would empower the current government of Prime Minister Matteo Renzi to implement much-needed reforms. A "no" vote would lead to his resignation and a period of uncertainty. Opinion polling so close to the vote is forbidden under Italian rules, but the most recent surveys indicated a clear victory for the "no" camp.

A gauge of eurozone sentiment by Germany-based institute Sentix released earlier this week pointed to an increase in fears that the single currency area will break up. The perceived euro exit probability jumped to 19.3%, the highest level since the Sentix euro breakup index survey started. In the chart below, the blue line represents institutional investors, the red line, retail investors. 

These jitters have been pushing down the prices of Italian assets. The iShares MSCI Italy Capped ETF (EWI) , the only ETF focusing solely on Italy that U.S. investors can access and which offers broad exposure to 85% of Italian companies ranked by market capitalization, has lost 20% year to date.

An index of Italian banks that includes stocks such as UniCredit (UNCFF) , Mediobanca (MDIBF) , Intesa Sanpaolo (ISNPY) and Banca Monte dei Paschi di Siena has lost more than 44% year to date, FactSet data show.

The yield on Italy's 10-year bonds has jumped to around 2% from a low of about 1.2% back in September.

It is a good opportunity for investors who like to be contrarians and enjoy taking risks (or have enough capital to be able to afford to) to get some exposure to Italy ahead of Sunday's referendum. I have been criticized for this stance before, with readers writing to tell me that I am too optimistic and noting that Italy has a toxic combination of high debt and high unemployment.

Be that as it may, I don't believe a "no" result in the referendum would be the catastrophe that is priced in by the markets. A "no" would indeed bring a period of heightened volatility, but I think those who believe Italy would leave the eurozone soon as a result of this vote are exaggerating.

Let's forget for a minute that the European Central Bank (ECB) is buying sovereign and corporate bonds like there's no tomorrow, effectively putting a floor under prices, and let's focus instead strictly on the specifics of this vote.

For one, Italian businesses are used to political crises. It's the way the country has operated for decades (and it is what Renzi wants to change things with the constitutional reform he is trying to push through). A "no" victory would only reconfirm the status quo, rather than upset things the way the Brexit vote has done in the U.K.

There are many observers who say the main danger following a "no" vote is that the Five Star Movement, a populist, Eurosceptic party created by comedian Beppe Grillo in 2009, would sweep to power and take Italy out of the eurozone, thus starting a chain reaction that would lead to the disintegration of the single currency area.

While this scenario could be why the fears of a breakup in the Sentix survey have jumped to their highest level ever, it conveniently leaves out a few arguments that run against it. The main one is that, consistently, surveys show that most Italians do not want to abandon the euro.

But even if they did, a referendum on euro membership would not mean the country would be free to just leave. The Italian constitution prohibits the repudiation of international treaties by popular vote, so another constitutional referendum would need to be called to change that provision.

All this takes time, and if there is one thing that populism fails, it is the test of time. Just like in the classic Mark Twain quotation -- or, rather, misquotation, but hey, this is a post-truth world -- reports of the euro's death are highly exaggerated.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Investing | Global Equity | Rates and Bonds | Markets | Financial Services | ETFs | Funds | Economy | Politics | How-to | Risk Management | Stocks

More from Financial Services

Insiders Are Stepping Up and Buying Shares in These 2 Companies

Bret Jensen
May 25, 2022 11:30 AM EDT

A provider of technology for managing smart homes and a financial services concern are finding interests from directors and officers.

Crafting a Technical Strategy for Insurer MetLife

Bruce Kamich
May 24, 2022 8:31 AM EDT

Let's go MET? Here's how traders can play the stock now.

Berkshire and Buffett Rightly Put Their Value Stamp of Approval on Citigroup

Brad Ginesin
May 17, 2022 10:01 AM EDT

The nod from the Oracle of Omaha's company could signal that it's finally the right time to buy the banking giant.

SoFi Technologies Is Primed for a Rebound

Bruce Kamich
May 16, 2022 8:50 AM EDT

Here's where the shares may be headed next.

Affirm's Results Impressed and Here's Why I Want a Piece of the Action

Stephen Guilfoyle
May 13, 2022 11:00 AM EDT

There are several reasons why the shares were trading higher.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:46 PM EDT STEPHEN GUILFOYLE

    We're Shedding Some of This Holding on Strength

    Check out the Stocks Under $10 portfolio here!
  • 11:33 AM EDT PETER TCHIR

    Thoughts Ahead of the Fed Minutes

    Recent economic and earnings issues are convincing...
  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login