Italian stocks and country-specific ETFs have been outperforming in the Eurozone region despite the ongoing uncertainty around the Southern European country and its troubled banking sector.

Over the past three months, the iShares MSCI Italy Capped ETF (NYSEArca: EWI) increased 6.3% and Franklin FTSE Italy ETF (NYSEArca: FLIY) advanced 5.9%, whereas the benchmark MSCI Europe Index added 2.7%.

Italy’s economy dipped into a recession in the fourth quarter of 2018, and political volatility may persist as analysts argued that the governing coalition of the anti-immigration League party and the antiestablishment 5 Star Movement may not survive the year, the Wall Street Journal reports.

Nevertheless, the benchmark FTSE MIB stock index is among the best performers in Europe, jumping 11% so far this year.

Demand for newly issued Italian government bonds have also far exceeded supply, reflecting the renewed risk-on appetite and growing appeal for the country’s higher interest rates, which are near records relative to benchmark German rates.

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