The success of the Five Star Movement and League party in Italy has dampened the appetite for risk among institutional investors across Europe, new research has found.
30 MAY 2018 | CHRIS SEEKINGS
A monthly index by the State Street Corporation based on equity asset allocation gives European investors a confidence score of 101.5 for May, down from the 111 recorded in April.
Similar results were found globally, with risk appetite among investors worldwide falling nearly 12 points from 115.3 to 103.5 amid growing geopolitical uncertainty.
"The success of Eurosceptics in Italy has shaken investor appetite, while rising trade tensions have escalated uncertainty," State Street Associates founding partner, Kenneth Froot, said.
"Now, well into 2018, institutional investors face a challenging environment with a pick up in stock market volatility and elevated stock valuations despite strong earnings."
Italian markets tumbled after the country's president appointed Carlo Cottarelli as caretaker prime minister, with the Five Star Movement and League party refusing to back the decision.
An autumn election now looks likely, with the valuation of Italy's FTSE MIB stock exchange falling 13% from its peak in mid-May when it was the best-performing market in Europe.
Similarly, the minority government in Spain lead by Mariano Rajoy faces a vote of no confidence following members of his party being convicted in a corruption case.
The vote, due on Friday, could result in the Socialist Party replacing the current centre-right government, with the country's IBEX stock exchange falling 4.75% since the news broke last week.
However, Architas investment director, Adrian Lowcock, said investors in Europe should "look beyond politics" which can be complex and distract from the fundamentals.
"The region covers a broad number of countries and companies and is still growing fairly strongly," he continued.
"Corporate earnings are also improving although the speed of recovery has slowed recently."