Daily Management Review

Analysts Warn a Bigger Risk than Donald Trump is Italian Referendum


11/11/2016




Analysts Warn a Bigger Risk than Donald Trump is Italian Referendum
Global stocks have made a comeback and have been rallying since falling sharply following Donald Trump's victory in the United States presidential elections which initially sent shockwaves through markets around the world. Some analysts simply feel that investors will wait and watch for clues from Mr. Trump's presidency while others have been calling this a knee-jerk reaction.
 
"Short term, financial markets should learn a lesson of Brexit – which is that even political earthquakes with profound economic consequences do not change the world overnight, or in a predictable fashion," Stephanie Flanders, chief European market strategist at JPMorgan Asset Management told CNBC via email.
 
"In the short-term, the best thing that most investors can do will be to sit tight and look for clues from Trump's first few weeks."
 
However, markets will soon focus on the events in Italy as the risk event for markets globally and will soon move away from the Trump Trade, some analysts have told the media that the markets will soon move away from the Trump Trade.
 
"The upcoming Italian referendum this December may create volatility across markets as the year draws to a close," Maria Paola Toschi, global market strategist at JP Morgan Asset Management told the media.
 
Considered a political test for Italy is the referendum on Senate reform, she further added. "A victory of yes could reinforce the empowerment of the current coalition on an ambitious program of reforms. The victory of no could open a period of uncertainty on the political stability of the current coalition that has been always strongly committed on reforms."
 
The result of the Italian referendum could have global implications, many analysts have warned. Other countries that are already facing a strong resistance to changes with elections across Europe that will take place next year could face social turmoil if there is a defeat in the referendum for Italy.
 
At present, there are often delays in effecting new laws and reforms as any Italian law needs to be approved by both the Chamber of Deputies and the Senate. However on December 4, by restructuring the legislative process by effectively reducing the second chamber's power, the Italian public will get to decide whether they want to stick with the old or shake things up.
 
The country's Prime Minister, Matteo Renzi who has said in previous months that he would resign and abandon politics if the constitutional reforms were not passed and this is among the other uncertainties around the referendum.
 
"There is certainly a lot of interest on the upcoming Italian referendum and what its result may mean for the future of Europe's political stability. Although political events can create volatility in the short term, it is important for investors to focus on the fundamentals and long term drivers of the markets," JP Morgan's Toschi told CNBC.
 
However, the Italian referendum may not get as much coverage, some analysts believe. The build-up to the Italian referendum is unlikely to be as significant as the U.S. election, Ana Thaker, a market economist at PhillipCapital UK says.
 
(Source:www.cnbc.com) 






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