Political risks in global markets have reached new levels in 2016. From a Brexit vote outcome to a Donald Trump presidency, risks seem nowhere near abating in the near term, with the latest Italian polls leaning towards a rejection of Italian Prime Minister Matteo Renzi’s constitutional reform.

What exactly are Italians voting for? And what risks present themselves in the case of a rejection?

Italy has struggled in tackling unemployment over recent years despite labour reforms implemented by Renzi back in December 2014, with the aim of boosting GDP and employment concurrently.

Italy has had numerous government changes over recent years and Renzi’s constitutional reform proposes curbing the power the Italian senate and upper house hold on bringing down governments with a vote of no confidence. This proposal aims in restoring political stability to Italy, whose economy has been the weak link of the Eurozone, predominantly on the back of flat GDP data and the substantial amount of non-performing loans on Italian banks’ balance sheets.

In the case of a no vote in the election to be held on December 4th, Renzi has stated he would resign from his position. This would bring further political uncertainty to the Eurozone, already on alert of uncertain Brexit implications.

The fact that the popularity of far right and Eurosceptic movements in Europe is gaining ground, supports expectations of a possible successive government led by Italy’s popular, anti-establishment, Eurosceptic ‘Movimento 5 Stelle’.

Italy is not the only European powerhouse facing the possibility of a Eurosceptic movement. In France, the ‘Front National’, led by Marine Le Pen, are strong favourites to challenge ‘Les Républicains ’ candidate – most likely to be Alain Juppe or Nicolas Sarkozy, to the presidency in the first half of 2017.

What could financial markets expect?

Well surprisingly, markets were quick to recover initial sell-offs following the Brexit vote and US presidential outcomes. The US market has seen shifts out of bonds into equities since the recovery, on optimism Trump’s proposed policies will boost US GDP growth and inflation.

Sell-offs in risky assets in the Eurozone are very likely should a No vote win the constitutional reform vote in Italy. Though, whether markets are quick to recover or not depends on investor confidence and whether such a shift in political paradigm throughout the globe and Europe especially, will in fact be beneficial in bringing the needed reforms and change in boosting global growth.

In my opinion, globalisation over the years has led to the reduction of protectionism and the overregulation of financial markets, undermining many companies’ opportunities in generating profits, well needed to boosting GDP growth.

Maybe the shift in political paradigm, in the form of deregulation and the priority of national issues is what the global economy needs to regulate itself back to growth, regardless of the political debate of whether such policies are perceived right or wrong.

The accommodative monetary policy era adopted by many central banks in the past decade may be coming to an end, if global growth fails to pick up significantly. Fiscal reforms brought about through the form of political shifts could then shape the future of the global economy. Regardless, volatility in the markets is here to stay and opportunities will frequently come and go.

So where do I get the best long-term bang for my buck?

Good question! Although Black Friday next week could surely be the short-term alternative.

This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.