Roundup: Italy markets recover slightly, but political questions likely to lead to continued volatility:analysts

by Eric J. Lyman

ROME, May 31 (Xinhua) -- Italian financial markets ended one of the most turbulent months in recent years on a slight high note on Thursday, but analysts warned the worst might not be over for Italian investors.

The MIB-30 blue chip index on the Italian Stock Exchange lost more than 13 percent of its value between its monthly high on May 7 and its close on May 30, including ten sessions where the index declined and seven where it rose.

Similarly, the yield on benchmark Italian ten year bonds crashed through the 2.5-percent barrier for the first time since 2014, reaching its highest point in nearly four years at 2.76 percent on May 30.

The spread -- the difference between the yield on Italian debt against that on German debt -- reached 300 points on ten-year bonds on May 30. The larger the spread more investors see risk in Italy, the country with the higher yield.

But bargain hunters stepped in on May 31, helping stocks recover some of their recent losses (the MIB-30 spent most of the day in positive territory on May 31 before finishing slightly lower because of pressure from other markets) and pushing the yield down on government bonds.

"There is not a step-by-step correspondence between news and the way markets react," Mario La Torre, an economist and finance expert at Rome's La Sapienza University, told Xinhua. "Markets are emotional. They move based on perception."

Italy appears to be in the middle of an extended period of political instability. The March 4 general election was inconclusive, and the big winners from that vote have struggled to agree on a government. Reports surfaced after markets closed on May 31 showing a new government might be imminent, but even with a new government is in place, analysts said investors will be nervous about what it might do.

"Any recovery right now is probably technical in nature, the idea that on a high level, not individual investors or banks, but insurance funds, pension funds, may have taken a step toward Italy for technical reasons," Francesco Caruso, a financial analyst with Milan-based Market Risk Management, said in an interview. "We really have to wait and see in order to understand what is happening. A brief respite does not mean the problems are solved."

Most analysts, including La Torre and Caruso, say Italy needs to go through political and economic reform in order to make the economy more stable and efficient. "Italy has to start thinking long-term," Caruso said. Enditem