Volatility to be followed by calm after Italian referendum result

Volatility to be followed by calm after Italian referendum result

Volatility in Italian and European investments will be short-lived following the Italian referendum result according to Pioneer Investments.

The rejection of Prime Minister Matteo Renzi’s proposed constitutional reforms could halt the efforts taken over recent years to stimulate the Italian economy, the fund manager said, but if a coalition government is formed rapidly those risks could be well contained.

Following the result a number of Italian banking equities fell sharply this morning, with Intesa Sanpaolo falling 3.66 per cent and Unicredit falling 4.03 per cent. Italy's stockmarket benchmark, the FTSE Mib, was down 1.27 per cent this morning.

Pioneer Investments' head of global asset allocation research, Monica Defend said: "On the fixed income side, we believe the “no” outcome and transition government scenario was already priced in, so spread volatility of peripheral countries should be short-lived, unless the conditions for setting the transition government are not met."

She said that after experiencing the unexpected with Brexit and Trump’s victory, investors may have become too keen to price in political risks.

"We thought that the market was overshooting ahead of the referendum," she said. "A 'no' victory was partially discounted in Italian assets, and we believe there is value in Italian government bonds."

She also predicted short-term volatility and further weakening of the euro versus the USD. 

But the manager does have a cautious view on Euroland equities as headline risks are still high in the crowded political agenda.

Ms Defend said: "We believe that this result will not derail our constructive outlook for 2017, with potentially higher growth and higher inflation on the radar globally."