A Problem for Italy ETFs

The iShares MSCI Italy Capped ETF (NYSEArca: EWI) has tumbled more than 13% over the past month and in the eyes of some market observers, the Eurozone’s third-largest economy is facing a rising risk profile.

Excluding unfunded pension, healthcare costs and Eurozone bailout payments, Italian total real economic debt is 259% of gross domestic product, up 55% since 2007, and France’s equivalent debt is 280% of GDP, up 66% since 2007.

Italy’s budget deficit is 2.9%, with government debt at 132% of GDP, while France’s budget deficit is 4.2%, with government debt at 95% of GDP.

Unemployment remains a significant drag on the economies. Italian unemployment is over 12%, with youth unemployment as high as 44%. French unemployment is above 10%, with youth unemployment at more than 25% – unemployment in France also touched a record high of 3.55 million people in the second quarter last year, according to Dow Jones Business News.

Italy’s banking sector is facing increased pressure and that is potentially bad news for EWI, an exchange traded fund that allocates nearly 37% of its weight to the financial services sector. Like many single-country ETFs, EWI’s largest sector weight is financial services.