Implications of Italy’s “No” vote on Europe

05/12/2016

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​The Italian referendum was about reforming the electoral system, with the ultimate objective to give greater stability to Italy’s governments. However, it had been turned into another chance for a protest vote, and it was widely expected that the outcome would be a rejection. That result has led to the immediate resignation of Prime Minister Renzi.

There is now likely to be an interim government in Italy, possibly lasting through to the scheduled elections in May 2018. Such an arrangement has been the norm over many years in Italy and in fact the lack of government in Spain for as long as nine months earlier this year (and indeed Belgium for 18 months a few years ago) does not seem to have had a material negative impact on economies.

Much of the UK press would like to see this as the beginning of the end for Europe. But it might actually be the last major political surprise, rather than another country following the UK’s baffling Brexit decision. Austria rejected a Far Right presidential candidate over the weekend, and that has seen virtually no coverage (admittedly overshadowed by Italy, but still significant).

Next up is France in April 2017, and there is no doubt that there will be plenty of coverage on this, even though François Fillon may turn out to be a refreshingly good partner for a Germany that recognises that Europe needs to change some things pretty soon.

Meanwhile, economies are doing okay, a weaker euro is a positive for Europe’s exporters, and there may be a ‘clever’ arrangement to solve the problem of recapitalising Italian (and other) banks.

Finally, while Italy may be an important economy in terms of scale, it is also a lot wealthier than some would perceive, but its stock market is quite small. In the Henderson Horizon Pan European Equity Fund, we have no exposure to Italy and have not had since selling Intesa, immediately after the UK Brexit referendum.

I continue to believe that Italy will not rush to hold a referendum on whether to remain in the euro. After a lengthy period of euro criticism, some may wish to point out that Ireland is flourishing again, Spain is improving fast and, in general, European economies are faring quite well (in a low growth world).

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.


Important information

Please read the following important information regarding funds related to this article.

Henderson Horizon Pan European Equity Fund

The Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson Global Investors Limited in its capacity as Investment Manager and Distributor.

Issued by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355) (incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE and authorised and regulated by the Financial Conduct Authority) provide investment products and services. Telephone calls may be recorded and monitored.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of units. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. Key Investor document is also available in Spanish. All of these documents can be obtained free of cost from the local offices of Henderson Global Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Henderson Global Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent. RBC Investor Services Trust Hong Kong Limited, a subsidiary of the joint venture UK holding company RBC Investor Services Limited, 51/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, Tel: +852 2978 5656 is the Fund’s Representative in Hong Kong.

Information on this document is on Henderson's best endeavours.

Specific risks

  • If you invest in a share class denominated in a currency other than the fund’s base currency you are subject to foreign exchange fluctuations that may affect the value of your investment.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • Currency markets are highly volatile by nature and are affected by various factors such as political/economic developments, changes in tax/ monetary policies of governments, balance of payments, international trade patterns and liquidity in the currency markets. Currency investments may result in the possibility of greater loss, increased transaction costs and greater volatility in the NAV of the Sub-Fund
  • The Fund may use derivatives for hedging purposes to protect portfolios against currency fluctuation, market movements and interest rates risks. Derivatives involve risks different from, and in certain cases, greater than, the risk presented by more traditional investments. Where the investment policy allows, funds may engage various strategies in view of reducing certain of their risk and for attempting to enhance return. These strategies may include the use of derivative instruments such as options, warrants, swaps and/or futures.
  • In certain market conditions, investments held by the Fund may not be as liquid as they would be in normal circumstances. A reasonable price may be harder to attain in such conditions and there is a risk that the price at which the investment is valued may not be realisable in the event of sale. The Fund may therefore be unable to readily sell such investment.
  • The value of the investments in the Fund may go up or down due to changing economic, political, regulatory, social development or market conditions that impact the share price of the companies that the Sub-Fund invests in.
  • OTC investment's valuation may be difficult to obtain as reliable information of the issuers and the risks associated to the issuers' business is not publicly available. OTC derivatives have the risk of incorrectly valuing or pricing and they may not fully correlate with the underlying assets. Investment in OTC markets carries the risk that a counterparty may default on its obligations.
  • The method of calculating performance fee gives rise to the situation that a shareholder redeeming shares may still incur performance fee in respect of the shares, even though a loss in investment capital has been suffered by the redeeming shareholder.
  • Where share class hedging is undertaken, the Investment Manager may use financial swaps, futures, forward currency exchange contracts, options and other derivative transactions in order to preserve the value of the hedged share class currency against the base currency of the Sub- Fund. The effects of the hedging will be reflected in the net asset value of the hedged share class. Any expenses arising from such hedging transactions will be borne by the share class in relation to which they have been incurred and will thereby impact on the performance of that share class. Where such hedging is undertaken it may substantially protect investors against a decrease in the value of the base currency of the Sub-Fund.

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