(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Just as investors were enjoying Italian equities’ biggest annual advance in two decades, along comes a vote that may spoil the party.Regional
elections on Sunday could weaken the government, especially after the leader of the Five Star Movement, the biggest party in the ruling coalition, quit earlier this week. A win by the populist Matteo Salvini’s League in one of the
Democratic Party’s historical strongholds would raise the prospect of an early
election and a potential comeback for a euroskeptic agenda.The renewed political risks come hot on the heels of a rally that pushed the benchmark FTSE MIB Index up 28% last year, its best performance since 1998. Shares of banks may be particularly vulnerable, with a gauge of Italian lenders poised for its worst week since October as bond yields climbed following the resignation of the Five Star Movement’s Luigi Di Maio. Some state-controlled companies and infrastructure firm Atlantia will also be in the spotlight.READ: A Fresh Bout of Italian Political Risk Puts Investors on EdgeHere’s a list of stocks to watch going into the regional vote:FinancialsLenders including UniCredit SpA, Intesa Sanpaolo SpA and Banco BPM SpA, and insurers such as Assicurazioni Generali SpA are sensitive to the spread between Italian debt, known as BTPs, and German bunds, which are likely to react to the outcome of the vote.“In
Italy, financials are the most exposed to political volatility, given their exposure to BTPs,” said Francesco Castelli, head of fixed income at Banor Capital.Separately, the restructuring plans of Monte dei Paschi di Siena SpA are “exposed to implicit support” from the current government and to an agreement with the
European Union regarding the transfer of the bank’s bad loans, Castelli said.Such an accord is a key step toward the sale of the lender and the government’s commitment to exit its 68% stake by 2021.Paschi shares have outperformed local peers this year, and are up 32% as investors bet on the de-risking and M&A prospects.AtlantiaThe government has decided to wait until after the vote to make a decision on whether to cancel the motorway concession of transport infrastructure company Atlantia, according to reports in the Italian media. The company could be stopped from operating 3,000 kilometers of highway following the deaths of 43 people when a bridge in Genoa collapsed in August 2018.The Five Star Movement has been very vocal about revoking the licenses of the Autostrade per l’Italia unit, with resigning leader Luigi Di Maio repeating on Wednesday that his group will press for the move.Still, the government is looking for a “balanced solution,” Finance Minister Roberto Gualtieri said Thursday. And Atlantia CEO Carlo Bertazzo said the company is open to a deal with the government on Autostrade as long as the solution guarantees the group’s financial stability, according to an interview with La Stampa on Friday.State-Controlled CompaniesA flurry of appointments or confirmations of chief executive officers of state-controlled companies, which are large-caps on the local stock exchange, is due in the spring.Eni SpA, Enel SpA, Leonardo SpA, Terna Rete Elettrica Nazionale SpA and Poste Italiane SpA’s top executives are up for review in the coming weeks and the election result may affect this.Defensive PlaysCompanies with a more defensive profile may perform well amid instability, including some global champions with little relation to local developments, such as
Ferrari NV.Companies including Amplifon SpA, DiaSorin SpA, Recordati SpA, Davide Campari-Milano SpA and Interpump Group SpA “are safe harbors from Italian political risks,” said Angelo Meda, head of equities at asset manager Banor SIM SpA in Milan. “If anything disruptive emerges from the regional vote on Sunday, it’s likely that they will outperform.”\--With assistance from Sonia Sirletti and Giovanni Salzano.To contact the reporter on this story: Chiara Remondini in Milan at cremondini@bloomberg.netTo contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh, Dan LiefgreenFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.