These are the stocks to long and hortin the aftermath of Italy’s general election, according to algos at Quant Insight
Italy’s general election today could have profound consequences on European markets, and certain stocks will be winners or losers.
Analytics firm Quant Insight, which counts a number of global asset managers and hedge funds on its books, uses powerful algorithms to track which stock could benefit from specified outcomes.
Ladbrokes Coral, Capita, Royal Dutch Shell and Direct Line will be among the companies which do well if the election result is predictable and causes few ripples, according to Quant.
On the other hand, Alton Towers owner Merlin, G4S, and Zara parent Inditex could do well in the event of a “risk-off” event which makes investors more risk-averse. This could include an unexpected result or no clear majority, or an “anti-EU” victory.
The 20 stocks which could benefit each way
Stocks to benefit from a calm result
Stocks to benefit from a “risk-off” result
Capita
Altice
EDF
Orion
Wacker Chemie
Inmarsat
Bpost
SES
IG Group
Siemens Gamesa Renewable Energy
E.On
Merlin
Novo Nordisk
Eutelsat Communications
Neste Oyj
Vestas Wind Systems
Amer Sports
Inditex
RPC Group
Elior Group
Associated British Foods
Endesa
Swisscom
Sanofi
Givaudan
Prosiebensat.1 Media
Direct Line Insurance
Merck
Novozymes-B
United Utilities
Umicore
Intrum Justitia
Ladbrokes Coral
G4S
Veolia Environnement
Elekta-B
Royal Dutch Shell
Skanska-B
Hargreaves Lansdown
Suez
If investors are banking on the Italian election producing an expected result, they may take long positions in the first column while shorting the second. If they believe a shock outcome is more likely however, the positions would swap around.
“It’s interesting that these are pan-European names rather than Italian names,” said Quant Insight’s Mahmood Noorani.
“Clearly these companies are sensitive to increased European risk, of which Italy is a part. Investors view them as exposed, positively or negatively, to European/Italian risk.
“There is also probably something deeper going. For example, a crisis in Italy probably means a weaker euro, which for a large Italian exporter might actually be good news overall. It might also be good for a utility (defensive) stock as another example. It might be really bad for a company more exposed to domestic demand (e.g. consumer discretionary).”
What are the algorithms picking up on?
The yields of Italy’s five-year BTP treasury bonds have dropped recently relative to their German Bund peers, meaning the spread has narrowed.
This comes as Quant’s research has shown wider credit spreads have been pushing European stocks lower.
A risk-off event in the election would likely widen BTP-Bund and European credit spreads, pushing European stocks lower on the current pattern of association.
The 40 stocks which Quant Insight has chosen are those which have proved to be particularly susceptible to these fluctuations.