European Elections 2019

European Elections 2019

The analysis of our investments team  

May 27th 2019.

The European elections have highlighted once again how the European socio-political scenario returns a very divided Europe. If on the one hand the sovereign parties at European level have grown below expectations and there has been a strong increase in turnout at the continental level compared to the previous round of elections, on the other hand it emerges as in two main countries of the EU, such as France and Italy, the Eurosceptic parties of Marine Le Pen and Matteo Salvini have established themselves as the first parties, with 23.50% and 34.4% respectively of the votes.

In Italy in particular, the boom of the League could have repercussions on the Government’s hold, also following the heavy debacle of the 5 Star Movement, which collapsed in consensus from 32.7% of the one-year political elections to 16.9 % in this election round, overtaken by the PD as a second party at national level. At the moment, however, the hypothesis of a government reshuffle has been denied by Salvini, and this has reassured investors, with the FTSE MIB leading the increases in the main European stock markets, while the spread between the Italian ten-year and the German one is stable (around 270 points).

The result of the European elections seems to delineate a Parliament in which the pro-EU parties will maintain a majority of about two thirds of the seats, with a consequent reduction of the rise of the Eurosceptic parties. In this context, the markets currently seem to breathe a sigh of relief, with the main European indexes in slightly positive area. However, the overthrow of the electoral hierarchies in two of the main European countries, such as France and Italy, entail the emergence of political unknowns that could lead to tensions and to undermine the hold of the respective governments.

We therefore suggest continuing to underweight European equities, also in light of declining macroeconomic data in the area and the negative effects of trade war, which in addition to causing a slowdown in the global economy, could see European exports (primarily those of of the automotive sector) as the next frontier of commercial war carried out by the Trump administration.