Market Overview

Italy ETF Contends With Election Results, Dour Social Climate

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Italy ETF Contends With Election Results, Dour Social Climate
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The iShares MSCI Italy ETF (NYSE: EWI), the largest U.S.-listed exchange-traded fund dedicated to Italian stocks, finished slightly lower Monday, a day after Italian election results indicated increased odds of a hung parliament and voters favoring far-right, populist parties.

Last year, voters in France, Germany and the Netherlands rebuked the populist tone set forth by the 2016 Brexit vote and the U.S. presidential election, but the Italian election results are prompting some market observers to ponder the resurgence of populism in Europe.

"After France and Germany limited populist and far-right insurgencies last year, Europe seemed to be enjoying a reprieve from such forces,” according to Elliott Wave International. “That ended on Sunday in Italy. The national election there revealed no outright winner, but a majority of votes went to a populist party and groups whose campaigns fed on anti-immigrant anger.”

EWI Impact

Although EWI incurred a modest loss on Monday, the ETF is lower by 7 percent over the past month and resides about 9 percent below its 52-week high, putting it dangerously close to the official definition of being mired in a correction.

“In Sunday’s vote, preliminary results showed, the parties that did well all shared varying degrees of skepticism toward the European Union, with laments about Brussels treating Italians like slaves, agitation to abandon the euro and promises to put Italy before Europe,” reports the New York Times.

Italy is the third-largest Eurozone economy behind Germany and France. Year-to-date, investors have pulled about $34.4 million from EWI.

Dour Mood

The social climate in Italy has long been somber, a theme reflected in EWI. Since March 5, 2010, EWI is up just 8.4 percent, trailing the MSCI EMU Index by a 6-to-1 margin over that span.

“Italy’s election is the latest manifestation of the country's negative social mood. Like a centrifuge, negative social mood pulls votes away from centrist candidates and flings them toward fringe politicians, populists and far-right nationalists — anyone who offers a way to turn things around. One of our best metrics of social mood is the stock market, and Italy's MIB index is down more than 50% over the past 18 years,” said Elliott Wave Chief Analyst of European Markets Brian Whitmer in a note out Monday.

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