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.
