The iShares MSCI EMU ETF (Cboe: EZU) is down just 1.24% year-to-date, but some market observers are highlighting Eurozone-specific concerns, such as Italy’s new government, as issues for the region’s financial assets to contend with.

The slowing Eurozone growth in recent months coupled with unease over the stability of the European Union as the anti-establishment Five Star Movement and far-right League formed a government in Italy fueled concerns over Eurozone assets. Furthermore, rising trade tensions as the Trump administration escalates protectionist rhetoric also weighed on the export-heavy Eurozone market.

“We see a limited risk of near-term flare-ups but are skeptical about the Italian government’s commitment to fiscal discipline and Europe’s ability to cope with the next downturn,” said BlackRock in a recent note. “We see better risk-return tradeoffs in non-EU assets.”

EZU, which tracks the MSCI EMU Index, holds 250 stocks. Approximately 63% of the fund’s geographic weight is allocated to France and Germany, the Eurozone’s two largest economies.

Regional Worries

Added trade concerns heightened the geopolitical risk in the market, which has been having a headache over Italy and the country’s high debt levels as it preps for a budget that could run counter to the EU’s deficit rules.

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