CITI: 'Don't waste your time' with Italy's spectacularly complicated election

Ernesto Ruscio/Getty ImagesFour-time prime minister, Silvio Berlusconi of Forza Italia speaks to a host on a television program with photos of Luigi Di Maio of the Five Star Movement (R) and Matteo Renzi of the Democratic Party (L) appearing on screens in the background.

  • Citi: Italy’s election is so complicated that the best strategy for investors is to wait to see what happens.
  • “While investors are increasingly receiving views on the pending Italian election (including ours), our humble suggestion is to stop reading stuff (apart from this quick note of course) and quietly wait for March 5th,” the pair said.

LONDON – Investors shouldn’t bother trying to make money on Italy’s upcoming election because it is simply too complicated, analysts at Citi have told clients.

“While investors are increasingly receiving views on the pending Italian election (including ours), our humble suggestion is to stop reading stuff (apart from this quick note of course) and quietly wait for March 5th,” Citi analysts Mauro Baragiola and Tina Fordham wrote in a note circulated on Monday.

“We think that i) the combination of the technicalities of the Rosatellum along with ii) the large number of undecided voters make (historically) already unreliable polls even less reliable. Whatever “experts” might say this week, it is highly unlikely to be accurate next week.”

Baragiola and Fordham argue that regardless of the outcome of the vote, Italy no longer poses an existential threat to the eurozone. As such, the country’s politics are nowhere near as important to investors as they once were.

Italy has been politically unstable in recent years but problems haven’t translated into international issues. Further instability, so long as it does not threaten the country’s membership of the eurozone, is not a huge problem.

“We believe that, after having scared investors in 2016, Italian politics has become somewhat irrelevant as investors (correctly) no longer fear an Italexit. Whatever the election outcome, we would simply expect Italy to go back to being the chaotic country that has disappointed investors and partners for a long time,” the pair write.

With less than a week to go before Italians vote for their new government, the outcome is hugely uncertain. The centre-left coalition of Matteo Renzi’s Democratic Party, the populist Five Star Movement, and the right-wing bloc comprising Silvio Berlusconi’s Forza Italia and the far-right Lega Nord could all end up in government, with all three blocs polling at levels too low to govern alone.

Citi says that the uncertainty means while a “disastrous” so-called “Italexit” is highly unlikely, it is equally unlikely that the vote will end in a clear positive outcome.

“While we tend to exclude scenarios leading to the much-feared Italexit, we also tend to exclude any very positive outcome either. Again, let’s wait for March 5th to both ‘count and weight: votes’ to ponder ‘how bad is bad’,” Citi’s team writes.

But the bank warns: “While Italy might remain irrelevant in the short-term, we fear that in the longer term the combination of poor macro, large public debt and political weakness might resurface and recent history (2011, 2012 and 2016) might repeat itself. After all, a dreadful end might be a better scenario than never-ending dread.”

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