Italian vote hurts emerging Europe sentiment; rating news benefits South Africa, Poland

By Christine Van Dusen

Atlanta, Dec. 5 – Sentiment among emerging markets investors suffered slightly on Monday after voters in Italy rejected a referendum on constitutional reform.

Though the news didn’t ding stocks much, bonds from emerging Europe seemed a little bit more vulnerable, a market source said.

The referendum was designed to boost the economy and accelerate the government’s ability to make decisions. Italian Prime Minister Matteo Renzi has said he will resign.

“The failure of Italy’s referendum on constitutional reform may destabilize the European market today amid forthcoming political turmoil and growing uncertainty over the future economic policy in the country and even its membership in the European Union,” according to a report from Schildershoven Finance BV. “We are likely to see a risk off dynamics today, coupled with the mixed United States labor market statistics.”

In other news on Monday, South Africa retained its investment-grade rating, which boosted the mood among investors.

The sovereign’s debt rating from S&P was unchanged at BBB-, one level above junk, and the outlook was left at negative.

And Poland saw its outlook from S&P move to stable from negative, “a positive factor for the Polish bonds, as investors are very concerned about the economic policy of the government,” Schildershoven said.

Looking to Latin America, trading was slow on Monday after Sunday’s anti-corruption protests in Brazil.

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