Emerging market ETFs fell to a new 2013 low on Monday as a risk-off bout swept through global markets on worries over elections in Italy. Funds pegged to emerging economies are down year to date and lagging developed-market indices such as the S&P 500.

The iShares MSCI Emerging Markets Index (NYSEArca: EEM) lost over 1% on Monday and fell to the lowest level since December.

“If the emerging market fundamentals don’t change overnight, sentiment is souring,” Seth Freeman, chief executive officer at EM Capital Management LLC, said in a report. “Italy has a high level of borrowing and debt, and that part makes investors very nervous and highlights the importance of governance.” [Where the ETF Inflows are Going]

The divided parliament in Italy is leaving a situation that may call for another election, reports Victoria Stilwell and Maria Levitove for Bloomberg. As a result, if Italy  is without a government the European Union’s chance of austerity aimed at resolving the region’s debt crisis and pulling it out of recession will lessen. The Eurozone economy is forecast to contract this year, rather than expand, according to the European Commission. [Emerging Market ETFs Lagging as U.S. Economy Stalls]

In response, the recent pullback in emerging markets has investors piling back into U.S. Treasuries. [Treasury ETF Tests 50-Day Average]

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