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Cowley: Italy has become Wonga client of international borrowers
by Robert St George on Oct 01, 2013 at 13:47
Stewart Cowley, head of fixed income and macro at Old Mutual Global Investors, has reiterated his negative stance on Italy following the latest turmoil in the country.
‘Italy has raised non-payment of taxes to the level of a national sport,’ said Cowley. ‘The Italian government now borrows the unpaid tax off its own citizens for which it pays them a rate of interest. This has taken Italy to the point that it now has a very unstable situation mathematically – Italy borrows money to pay its interest bill.’
He added: ‘You don’t have to be a client of Wonga.com to realise that once you have to borrow money to pay interest, you are in trouble. Add the politics on top and, even if they get through this short-term crisis, fundamentally something has to give.’
Cowley, who holds a Citywire + rating, confirmed that he has been running a short position in the Italian bond market, the world’s third largest.
The equity space too has been hit by the revelation that Silvio Berlusconi has withdrawn five members of his PDL party from their ministerial roles in Enrico Letta’s ruling coalition, sending the MSCI Italy index down by 3.6% over the past week.
‘While this plays out,’ commented Rory Bateman, head of European equities at Schroders, ‘Italian equities are likely to be volatile, especially the banking sector and stocks connected to Mr Berlusconi.’
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