Looming Election Could Challenge Italy ETFs

“The election occurs against a backdrop of an improving Italian economy and strong equity performance over the last 12 months,” said BlackRock. “The fact that Italian fundamentals appear to be on an improving trend limits the material downside to risk assets from political developments.”

Financial services stocks account for almost 36% of EWI’s weight, by far the ETF’s largest sector allocation. Energy and utilities names combine for about 31% of the fund’s weight. EWI has a trailing 12-month dividend yield of about 2%.

“Our base case, albeit with low conviction, is that a hung Parliament would most likely lead to a grand coalition between PD/Forward Italy and other centrist parties, while the possibility of a new election exists but is unprecedented during the Second Republic,” adds BlackRock. “Other scenarios, such as a national unity government supported by all parties, or an anti-establishment alliance with Five Star and the Northern League or PD, are less likely, in our view.”

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