The iShares MSCI Italy Capped ETF (NYSEArca: EWI), which is already one of this year’s worst-performing developed markets single-country exchange traded funds, could offer some near-term opportunity thanks to an improving technical condition. Fundamentals remain another story for the largest ETF tracking Italian equities.
Italy’s fragile banking sector, the largest sector allocation in EWI, is in focus as global market participants fret about Brexit’s impact on Italy’s banks.
The Italian government has been under pressure to calm concerns over its ailing banking system, which underperformed in the European Central Bank’s 2014 financial stress test and is holding €360 billion, or $410.5 billion, in bad loans.
Last year, reforms to Italy’s banking sector were seen as a potential driver of improved equity market performance.
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.
Technical analysis indicates EWI could rally, but the caveat is that any rally could be short-lived.