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David Moum Nbqlwhovu6K Unsplash
20.09.2022
How to manage
Italian election risk
Inflation & Central Bank rate hikes dominate the news. But this weekend’s Italian elections present a clear risk too.

How are investors supposed to measure Italian political risks & gain any insight on how it can impact their holdings?

Qi uses peripheral European Government Bond spreads as the markets’ way of pricing stress in countries like Italy. If an asset has a positive relationship with EuroZone sovereign confidence, it wants BTP spreads for example to remain contained.

The Optimise Trade Selection function allows users to screen a selected universe of assets for sensitivity to a single factor like BTP spreads. This enables us to quantify which assets are most reliant on Italian bond markets remaining well behaved.

Below (click image to expand) we look at European equity sectors & Real Estate emerges as the area most sensitive, & therefore most vulnerable should spreads blow wider.
Screenshot 2022 09 20 At 113123
All European sectors are in macro regimes currently &, while all are cheap, Real Estate is amongst the closest to macro-warranted fair value. Any escalation in Italian political risk & current patterns point to Real Estate as the most efficient trade from the short side.

This exercise can be repeated across different asset classes. Amongst Euro Stoxx 600 single stocks for example, Swedish equipment maker NIBE Industries is amongst the stocks most reliant on BTP spreads not blowing wider.

Most of the sensitive names are already cheap to model value. NIBE is in regime (84% model confidence) & is 0.7 std dev (9.7%) rich to model. It stands out as being particularly vulnerable to increased Italian political risk.

Which US stock is most reliant on the BTP market? Netflix

Choose your asset class.

Choose the scenario you are most focused on.

Allow Qi to find the optimal trade to capture your core view / or the hedge that negates your main tail risk.
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Quant Insight’s Macro Analytics
on Goldman Sachs Marquee
Goldman Sachs is embedding Qi’s data-science-driven
macro factor risk data into Marquee to offer risk
management capabilities that help provide clarity to your
investment analysis as you navigate your portfolio exposures,
asset by asset, through dynamic market conditions.
Goldman Sachs is embedding Qi’s data-science-driven macro factor risk data into Marquee to offer risk management capabilities that help provide clarity to your investment analysis as you navigate your portfolio exposures, asset by asset, through dynamic market conditions.