Financial services giant Morgan Stanley has released a report on how best to protect portfolios, ahead of Italy’s crucial referendum and upcoming European elections. EurActiv’s partner Milano Finanza reports.
With less than two weeks to go before Italy’s critical constitutional referendum, the pressure is increasing on the Italian stock market and government-issued bonds (BTPs).
“The US presidential elections refocused the markets’ attention on political risks. Now, after the US, the viewfinder moves to Italy, where Prime Minister Matteo Renzi risks losing a crucial constitutional referendum,” said Morgan Stanley in a report that explores the question of how to best cover portfolios in the lead up to the vote, bearing in mind the other elections that will face Europe in 2017.
Italian Prime Minister Matteo Renzi suggested today (14 November) that he may not stay on if a referendum on constitutional reform that he is championing fails.
Banks are divided in their appraisals of Renzi’s chances of success. Morgan Stanley puts the likelihood of a Yes vote at just 35%, while Goldman Sachs thinks there is a 60% possibility.
While not questioning the permanence of Italy’s membership of the single currency Eurozone, a No victory could lead to further volatility. “While the immediate impact of the referendum will not be dramatic, it is relatively economic to hedge the risk now,” Morgan Stanley added.
The investment bank also explained that the “full political calendar for 2017” means that a post-vote strategy must include a good platform to meet the challenges that could arise.
Next year, there will be all-important elections in both France and Germany, as well as in the Netherlands and the Czech Republic, while the Brexit issue will continue to remain high on most leaders’ agendas.
The Scottish and Welsh governments will be allowed to intervene in the upcoming Supreme Court case to decide how Britain will begin negotiations to leave the European Union, the court said today (18 November).
Morgan Stanley advised that the best course of action would be to buy put options on Euro Stoxx and protection on Itraxx Main.
The American multinational is in good form at the moment after its bosses made nearly €10 million selling stocks in the investment bank following Donald Trump’s surprise 8 November victory. Investors have been buying up stocks in the hope that the president-elect’s promise to scrap banking regulations will lead to bigger profits.