Italy is getting slammed today.
The benchmark FTSE MIB stock index is down over 2.1%.
What’s going on?
People are worried about the upcoming election.
Nomura’s Andy Chaytor explains the brewing political risk:
In Italy, our economists note that the market is underpricing political risk ahead of this month’s elections. After promising to abolish and refund a tax on first homes implemented by Prime Minister Monti, former Prime Minister Berlusconi’s centre-right coalition is expected to continue eating away at the lead held by Mr Bersani’s centre-left coalition. Meanwhile, Mr Monti’s coalition has again lost third place to the Five Star Movement in the latest polls. While our economists maintain their baseline scenario of a centre-left majority in both houses of parliament, they note that in the increasingly likely scenario that Mr Bersani fails to gain a majority in the Upper House, an alliance with the coalition led by Mr Monti is more likely than new elections. Nevertheless, they note that both the share of undecided voters (up to 35% according to the average of the latest three polls) and, as a corollary, the risk of ungovernability remain very high. While official publication of polling data will stop on Saturday, it will continue on some social networking sites, and our economists note that changes in the share of undecided voters will be “the most important factor to inform political risk and ungovernability.”
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