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.
Related: Rome Extends Italy Banks, ETFs a Helping Hand
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.
“In terms of Elliott wave structure, the Italy ETF (EWI) appears to have spent the past seven years tracing a corrective triangle. The pattern has the characteristic converging range, and each leg has consisted of three smaller sub-waves,” according to See It Market.
[related_stories]Italy, the Eurozone’s third-largest economy faces an array of challenges and headwinds. 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.
Related: 10 ETFs Hit the Hardest in ‘Brexit’ Fallout
“Although the triangle scenario is not certain, it makes sense to treat it as the most likely pattern for now. In that case, the main target area to watch for wave [e]is near 15.20 to 16.40. Since triangles are time-wasting formations, it could take a year or longer for price to reach that area. A patient trader might see nearly a 45% increase in share value,” notes See It Market regarding EWI.
For more news and strategy on the Italy ETF market, visit our Italy category.
iShares MSCI Italy Capped ETF (NYSEArca: EWI)
