As Looming Italian Election Raises Risks, Some Investors See Opportunity
By Mike Bird
With France and Germany's high-stakes elections out of the way, investors are gearing up for perhaps Europe's most important vote -- Italy's.
For some money managers, the threat of a populist upset in the eurozone's most debt-laden and slowest-growing major economy is a greater risk than any other election in this poll-packed year.
But that risk, in part, means that Italian government debt offers higher returns than its peers, presenting an attractive bet for some investors.
Italy's parliamentary elections must be conducted no later than May 2018 and some senior Italian law makers see it happening just before then.
"Italian politics is a byword for uncertainty, and that's particularly true if you look at the parties involved this time and their policies," said Charlie Diebel, head of developed market rates at Aviva Investors, an asset management firm. "The potential havoc it can wreak has always made it the biggest of the three elections."
In recent years global investors have shied away from Italy. Nonresidents currently own around 32% of Italy's outstanding government bonds, down from 44% in the summer of 2010, before the worst of Europe's sovereign debt crisis unfolded. That compares to 48% for Germany, and 52% for France.
Investors see many problems. Italy's public debt level is now nearly 135% of its GDP, compared with a regional average of just below 90%. Local banks still haven't really opened their wallets, with a mountain of bad debts still to be resolved.
Then there is the politics.