Italian Election: Big Win For Anti-Establishment

The Italian election was on Sunday. It came and went with little response from the markets. However, since I’m a fundamental investor, I look at events the market isn’t focusing on now, but might focus on in the future. If you’re only looking at what is moving the markets today, you’re a momentum trader. It’s easy to see why the market ignored the election and then yawned at the results. Because no coalition got 40% of the vote, this will be a hung parliament. I’ll review what that means later.

First let’s look at the results. In the lower house, the 5 Star Movement got 32.67%. The center right coalition, which includes League and Forza Italia, received 37% of the vote. The center left coalition, which includes the Democrats, received 22.85% of the vote. The Senate had similar results as the 5 Star got 32.22%, the center right got 37.49%, and the center left got 22.99%. The chart below shows the geographical distribution of the vote. As you can see, the 5 Star Movement dominated the south and Sicily because the party appeals to the economic uncertainty the people face. To oversimplify the vote, if you are happy with the current direction of the country, you vote Democrat. If you are unhappy, you vote 5 Star. It’s not surprising 5 Star did the best because about 85% of Italians think the country is headed in the wrong direction.

Hung Parliament, But 5 Star Gains Momentum

One takeaway is this election is bad for the country because a hung parliament means there’s no clear path for the government. Another takeaway is this is a big win for the anti establishment parties. None of the polls this year had the 5 Star Movement at 30% or higher which shows the size of the upside surprise. The last poll had the party at 26.3% which means it outperformed by about 6.1%. The last poll had the League at 14.8% and the Democrats at 21.3%. As you can see, the League beat estimates by about 3.7%. Since it’s the other anti-establishment party, it’s consistent with the other results. The establishment Democrats missed estimates by about 2.3%.