Italy’s Harlequin Performance

The laughable situation in Italy in which the traditional political parties struggle for majority votes at the behest of the populist movement “5 Star” (MS5) is somewhat remnant of the Renaissance theatre style commedia dell’arte. MS5, the ambiguous and enigmatic harlequin-esque populist movement, has danced its way into mainstream politics taking a large slice of votes from the Right-Wing parties, who are now screaming “encore” as they attempt to scramble enough power to encourage a second election. But why have these events had a tumultuous effect on the rest of the world?

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The political drama began when the MS5 seized power through their refusal to bow down to political elites. This is not the typical Left vs. Right epidemic we see in most Western countries, but more of a working class vs. elite struggle like the Catalonians against Franco or British Labour reforms in the 60s. At this stage, MS5’s aim seems drastic – this is not just about a reform, this is about a revolution with a focus on domestic empowerment, immigration issues and the European Union alongside a strong hatred of the mafia. But nothing is set in stone, and due to this, Italy are currently proving real tricksters to label which is a massive turn-off for international investors.

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Geo-political issues and rapid social change tend to not bolster share prices, and since the beginning of this new chapter, Italy’s stocks have gone on sale. Rocky prices like we have seen it Italy do however tend to draw in the braver investors who hedge their bets on the dangerous side. Unfortunately, the sale prices don’t match the level of volatility in political stability, and therefore don’t seem to be a great bargain. This of course puts off even the high-risk investors. JP Morgan strategist Mislav Matejka noted recently that there is a poor risk-reward going forward giving the strong run and the political overhang.” It seems that nearby German equities have been the preferred route for most investors after taking profits on Italian stocks.

This mass sell-off of Italian stocks was originally triggered by fears of a second election and investors fear of Italy ditching the Euro, which currently seems highly likely. Investors have decided to keep their money in their pockets for now until the situation cools down with SocGen trio warning that buying could remain weak for several months.

Italy’s performance hasn’t just affected Europe, it managed to dance its way across to the Atlantic and cause the Dow Jones Industrial Average to drop 391 points. Although the Dow Jones made a huge recovery, making back most of the May dip, it is still undeniable that Italy’s Euroscepticism and quick social change managed to scare even the Americans.

No one can predict the ending of this drama, and although for now it seems that Italy have put forward a government, we don’t know if we are at the beginning or end of this unbridled saga which will likely continue to tighten the strings on investors’ wallets.

 

Financial Ramifications of the UK Response to Russia’s Chemical Attack

From the outside, the purported Russian chemical attack in Salisbury, England is reminiscent of your favourite spy novel – one by John Le Carré, perhaps. The story might go a bit like this: a former Russian intelligence officer living in exile, enjoying lunch with his daughter at a popular local Italian restaurant, only to be found left for dead on a nearby park bench alongside a range of questions like How? Why? And Who? Unfortunately, this compelling drama isn’t a novel but real life, and as British-Russian relations tumble to a post-Cold War low as a result, how will this ordeal impact these two great nations’ economies?

By of the end of March 2018, over 200 diplomats have already been expelled from over 20 countries in Europe, Australasia, and North America in solidarity with the UK against Russia’s alleged aggression. NATO has further removed 7 diplomats from their alliance.  Since the attack, Russia has haemorrhaged political influence as countries turn their back on them to condemn their aggressive behaviour. The question on everyone’s mind is, could this soon escalate and become a financial Cold War?

The London property market and UK banks have long been known to shelter the money of Russian oligarchs. British Prime Minister Theresa May and her government are in the process of deciding whether they should clamp down on these assets and impose a ban on the City of London from helping Russia sell its sovereign debt, a process which props up their economy. It would certainly send a strong message to Moscow that Britain is still a strong international actor – even during the instability she faces during Brexit negotiations.

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Were the British Prime Minister to take this drastic action it is reasonable to expect that Vladimir Putin’s Russia would respond in equally robust terms. In our hyper-globalized world, it should come as no surprise that Russia has influence over socio-political conditions in Britain. The UK’s National Grid has been using Russian natural gas reserves to help keep up with demand for years; in 2015 nearly 10% of the UK’s consumption came from Russia. Although the winter is nearly over, and natural resources may not be important during the summer months, winter always returns, and there is the risk that next year Britain may struggle turning on the central heating.

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The question remains: are economic sanctions and restrictions worth bearing the socio-political ramifications of a stand-off? That remains to be decided. For now, the world waits to see both May and Putin’s next moves.

DISCLAIMER: This message is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any securities. Past investment performance may not be indicative of future investment performance.