European issues were largely on the backburner to start the
year, as investors focused in on solid economic data from around
the world. The latest news out of Italy, though, may through a
wrench into this bullish trend and reignite European fears once
This is largely due to a major election for the country's
lower House and upper House (Senate), the results of which are
not as clear cut as analysts once hoped. Instead of the
Berlusconi looks to (possibly)
come in second in the lower House and possibly win the
Since Berlusconi has declared that his aim is to
win enough power in the Senate to paralyze a
administration, we could see the reintroduction of extreme
gridlock to the troubled nation. This is a serious issue given
that Italy has a massive debt load and one of the major economies
in Europe, a combination that could spook markets if bond yields
Is The Italy ETF Doomed from a Technical
This is arguably already starting to happen as many stocks
sold off after the Italian election results became cloudier and
more gridlock appears to be on the horizon. Some are now fearing
calls of a second election, a situation which could send markets
into a tailspin in short-order, as it would definitely call into
question the ability of Italy to continue on its current
The impact on the ETF world of this election has been pretty
severe. Most European markets closed before more up-to-date
election results were known, so many markets in the region only
sold off a little during their trading hours.
However, immediately following their closure for the day,
Berlusconi's party surged and the once straight-forward results
became muddled, causing many European-focused stocks to plummet.
This was especially the case in the European ETF sphere as these
became the go-to vehicles to play the important election, with
catastrophic results across the board (see
More Trouble Ahead for Italy and Spain ETFs?
The main ETF in focus the
iShares MSCI Italy Capped Index ETF (
plunged by about 5.75% on the day, on volume that was roughly
three times normal. It should be noted that most of the losses
came after 1pm eastern, and that a sizable chunk of the volume
was in that period as well.
Beyond Italy, other PIIGS
, such as those tracking
also sank heavily on the day, with Ireland's ETF losing over 3%
and Spain's plunging by over 5.5%. So clearly there were
some broad worries over the European market thanks to this
Italian election (read
ETFs for 3 of the Cheapest Markets in the
Yet the pain didn't stop in the weak European country ETFs by
any stretch, as some for the major economies also saw their ETFs
plunge on the day as well.
lost about 4%,
tumbled by about 4%, and even
saw losses of nearly 2% on the day.
Although many U.S. investors take an American-centric approach
to their investing, foreign events can and do have a huge impact
on stocks across the world. U.S. stocks were down over 1.5%
thanks to the Italian woes-along some sequester fears-so it is
clear that in this age of globalization any good or bad news can
roil the global markets (see
Three European ETFs with Incredible 2012
Given how intense the sell-off was thanks to the Italian
election results, this could be a new leg of the crisis in
Europe. This could be especially true if there is a mixed
government in Italy or if more elections will be required.
In either case, more uncertainty will be the result, and
heavier losses could follow. This suggests that investors, no
matter what side of the Atlantic they are on, need to play close
attention to Europe, and the trading patterns in many European
ETFs for clues on how this crisis will play out.
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Author is long EWG.
ISHARS-MS IRLND (EIRL): ETF Research Reports
ISHARS-GERMANY (EWG): ETF Research Reports
ISHARS-ITALY (EWI): ETF Research Reports
ISHARS-SPAIN (EWP): ETF Research Reports
ISHARS-FRANCE (EWQ): ETF Research Reports
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