Markets swing violently against Italy without clear idea of outcome

Thu Dec 1, 2016 6:54am EST
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By John Geddie

LONDON (Reuters) - Speculators convinced the euro zone faces fresh instability have zeroed in on Italy's constitutional reform referendum on Sunday, amassing huge bets on a slump in Italian banks and bonds should Prime Minister Matteo Renzi lose the vote.

Blindsided by skewed bookmakers' odds and equivocal opinion polls, financial markets ended up on the wrong side of Britain's vote to leave the European Union in June and Donald Trump's surprise U.S. election win last month.

Perhaps chastened by their miscalculation of public disaffection in those two pivotal 2016 events, bets against Italian assets appear to show markets now assuming voter rebellions in Italy and everywhere else in Europe.

"There are colossal short positions on Italy from the U.S. and other countries where big investors are based," Raffaele Jerusalmi, the CEO of the Italian stock exchange said this week.

Shorting, or selling a borrowed asset, is a technique traditionally used by hedge funds to bet that the value of an asset will decrease.

Data from the Italian market regulator shows "significant short positions" in Banco Popolare Di Milano and Banca Carige, while the regulator has restricted short-selling in shares of floundering Monte dei Paschi since July.

Weighed down by banking shares, Italy's main index .FTMIB is the worst performing stock market in the developed world this year, having shed more than 20 percent.

Steve Eisman, who made his name and fortune by betting against subprime mortgage securities, as portrayed in the film 'The Big Short', outlined to Reuters his extremely negative views on Italian bank equities.    Continued...

The Bank of Italy logo is seen at the company's headquarters in Milan, Italy, January 19, 2016. REUTERS/Stefano Rellandini/File Photo