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.

 

Just What Is Happening with Brexit?

Since the Brexit vote of 2016, British politics has been tumultuous with inter- and intraparty disagreements causing investors to treat FTSE and UK market investments as high-risk. So far, the most damaging aspect of Brexit seems to be uncertainty. Beyond the ramifications of leaving the EU, analysts are struggling to predict what a post-Brexit Britain will be like. It is difficult to predict how red tape around the Customs Union, which greatly benefits the British economy, will affect British trade, market capitalisation, and deciphering whether the market is undervalued or not.

The constant battles and disputes surrounding the legitimacy of Brexit and how Britain should go about it are frequently voiced in the House of Commons, appropriately reflecting the nations division over Brexit. Despite disunion being apparent between the two main British parties, Conservatives pushing for Brexit and Labour for a second referendum, there is a glaring divide notable within the Labour party – the left-wing alternative in the British parliamentary system.

Although individual Members of the Labour Shadow Government Parliament are for the most part Remainers, the party is a life-long Eurosceptic which is an obvious conflict of interest. Voters are very aware of this, and it is making Labour’s position on Brexit unappealing and creates more confusion among the electorate. Ex-British Labour Prime Minister Tony Blair has come out of the woodwork and criticised the current shadow government leader Jeremy Corbyn’s policies as being “the worst of both worlds”.

Following from this glaring division, an unforeseen issue has arisen in Ireland as talks of a hard border are discussed. Northern Ireland will follow Britain out of the EU, but Ireland will not. This issue was made more prominent when Theresa May stated recently that Britain is leaving the EU and will not softly exit the customs union.

This debate could reopen a healing wound with Northern Ireland by raising the issues of borders between the Ireland and Northern Ireland causing more political instability. Four political parties have backed Northern Ireland staying in the single market – stating that there should be no hard border between Ireland and Northern Ireland – and Ireland and the rest of the UK. This is also being supported by the DUP who propped Theresa May into power during the last election.

These political conditions reflect peoples’ uncertainty as to what will happen. Since the referendum, there have been market crashes, volatility, and stagnation in house prices all related to the vote.

Theresa May has opened the Conservative sails to the wind with her firm Leave stance when addressing the EU last week, stating that Britain will not be “climbing down” and will leave the Customs Union. Hopefully, Britain will decide soon how it will tackle leaving the EU so that it can begin reshaping itself according as currently no one seems to know what is going on, making it tricky for investors to trust British markets.