ROME: A ‘no’ vote at the Italian constitutional referendum on December 4 could trigger a 20% sell-off in Italian stocks, with the banking sector hit the hardest, according to one investment bank. “The bear case scenario for the equity market is a ‘no’ vote, in our view, that was then followed by PM Renzi standing down and a caretaker government being put in place until the next election. In this case, Italy could face policy paralysis within a political vacuum. We would see this as a significant risk-off event that might trigger a further sell-off in the Italian equity market of around 10-20% from current levels,” according to analysts at HSBC.
In the advent of a ‘yes’ vote, HSBC expect a short-term relief rally in the region of 5%-10% from current levels, led by the financials. “However, we doubt whether any upward move would be sustained given the broader problems facing the Italian economy.”
HSBC highlights that Italian banks could be the most impacted sector from the referendum, whatever the outcome, given their high gearing to the real economy (strong loans/GDP correlation). A ‘yes’ vote would trigger a short-lived rally, while a ‘no’ vote would trigger sell-off. Renzi previously said he will resign after a ‘no’ vote, but is now being coy
But it all depends on whether the prime minister Renzi still holds the reins, says HSBC, with a ‘no’ vote representing “a buying opportunity longer term, in our view, if the Renzi government remains in place and Italy remains committed to the EU. On the other hand, should Mr Renzi resign, we believe banks should underperform, driven by political uncertainty and negative fundamentals.” The bank also sees the utility sector suffering from any political developments as historically, uncertain political developments or the weakening of the domestic sovereign outlook have implied a negative market sentiment for the utility sector.
