Big Upside Seen for the Italy ETF

The iShares MSCI Italy Capped ETF (NYSEArca: EWI) is up almost 11% year-to-date, placing the lone Italy ETF in the middle of the five single-country PIIGS exchange traded funds in terms of 2015 performance.

Even with EWI’s solid year-to-date showing, the $963 million ETF could deliver more upside, particularly if the euro stabilizes.

“The key drivers for the Italian FTSE MIB are construction spending, the Euro dollar relationship, exports, Business lending to consumers over 5 years, industrial production from manufacturing, and Business confidence,” said Strategic International Securities (SIS), a New York-based registered investment advisor, in a note on EWI out Tuesday.

SIS initiated coverage of EWI with an overweight rating and an $18 price target, nearly 20% above where the ETF closed yesterday. The ETF’s medium-term fortunes will be driven by the financial services sector, and perhaps surprisingly to some investors, oil prices.

Reforms to Italy’s fractured banking system could be a catalyst to drive EWI higher. The changes could fuel debate over industry consolidation to target greater returns and economies of scale encouraging mergers and acquisitions, according to Mediobanca Securities. Specifically, the reforms would turn these types of banks into possible takeover targets almost instantly. For instance, the new rules could be a catalyst for a potential merger between UBI Banca and Banca Monte dei Paschi di Siena. [Catalysts for the Italy ETF]