Hold Your Horses on Italian Exit Polls If History Is Any Guide

(Bloomberg) -- Investors trading on the outcome of Italian voting should be warned: take exit polls with a pinch of salt.

Italy holds a general election on Sunday, with the outcome uncertain. A blackout period for opinion polls kicked in two weeks ago, when surveys were pointing to a hung parliament, with a center-right coalition led by Silvio Berlusconi short of a majority and the anti-establishment Five Star movement the single largest party.

Significant swings may have taken place during this blackout period, said Rabobank. Exit polls at 11:00 p.m. local time on March 4 will break the silence, but as seen on previous occasions they might differ from the actual results. These will be published throughout the night, along with pollsters’ projections based on sample votes that are more accurate.

“If I had to take an investment decision based on exit polls, I wouldn’t,” said Lorenzo Pregliasco, managing director of Agenzia Quorum, which manages pollster YouTrend.it. “The unknown factors are just too many.”

In the last general elections in 2013, national polls conducted during trading hours on Monday Feb. 25 showed the center-left candidate Pier Luigi Bersani ahead by 5.5 points, with a chance of a workable majority. Italian bonds rose the most in five months, the country’s stock index rose as much as 4 percent and the euro held onto gains.

Hold Your Horses on Italian Exit Polls If History Is Any Guide

A bit more than an hour later, the first projections on real votes started painting a different picture, with Berlusconi leading in the Senate and the anti-establishment Five Star Movement outperforming, which eventually resulted in an inconclusive election and a hung parliament. That sent Italian and European bonds and stocks down, with the euro declining to a six-week low.

Hold Your Horses on Italian Exit Polls If History Is Any Guide

In 2006, former Prime Minister Romano Prodi won by less than 0.1 percentage point after the first exit polls gave him a five-point lead. These were the story headlines in the following 24 hours:

Italian Stocks Advance as Exit Polls Say Prodi Wins Election 
Italian Stocks, Bonds Fall as Election Results Signal Stalemate

Looking at the last three general elections of 2006, 2008 and 2013, polling accuracy appears to have gotten less reliable over time, Deutsche Bank Asset Management’s Head of Macro Research Johannes Mueller said in a note.

To make it even more complicated this time, Italy’s new election law assigns just over a third of seats in both houses to first-past-the-post candidates, many of which are too close to call. Sweeping most of those districts could give Berlusconi’s bloc a parliament majority.

“Our humble suggestion is to stop reading stuff and quietly wait for March 5,” Citigroup Inc. analysts led by Mauro Baragiola wrote in a note on Feb. 27. The election law’s technicalities along “with the large number of undecided voters make (historically) already unreliable polls even less reliable.”

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