Complex Italian election outcome should not threaten the positive European story

Outcome: The electoral outcome (the very positive result of Five Star Movement, now the largest party, and of the Lega Nord in the center right coalition) was not priced by the market. With these results, if confirmed, the process of forming a government can be quite long and market uncertainty will remain high.

Economy: Italy is currently showing three main signs of improvement: competitiveness, investment and corporate access to the market. We believe that the electoral outcome should not derail the economic momentum. However, the market may react considering the new scenario with higher uncertainty for the country, as some of the positions of the winning parties during the electoral campaign where controversial in respect to reforms implemented by the past government, the Euro, and with electoral plans missing coverage details. In the medium term, a lot will depend on the actual policies that the new government will implement.

Markets: In the short term, we expect some volatility in the markets, at least until the new government will be formed and it will announce its economic and fiscal program. However, this time, we believe, the economic recovery in Europe and worldwide is much more resilient than in the past and the balance sheets of the companies are much stronger after many years of restructuring programs.

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