Storm hasn’t come but let’s be on guard
ITALY’S constitutional referendum takes place on Sunday.
Investors appear to have become relatively complacent about a possible “No” vote, thanks, perhaps, to the fact that the results of both the UK’s EU referendum and the US election, despite being the ones that were supposed to spell doom for risk assets, have spurred markets on to new highs.
So, should we be more worried? There are definitely reasons to be concerned. Most immediately there is the state of Italy’s banks, of which, apparently, there were until recently more branches than pizzerias in the country, which tells you how bloated the sector was! Current bad loans in the system are estimated at €360 billion. If Prime Minister Matteo Renzi’s reforms are rejected, and he resigns, it will only cement anti-EU sentiment in Italy.
On the same day as Italy’s referendum, Austria goes to the polls to vote for a new president, with a close result forecast.
At issue, is the possibility that Austrians will elect the first far-right head of state in Europe since the Second World War.
Such an outcome would certainly encourage supporters of National Front leader Marine le Pen in France. She now knows that, barring an unforeseen and unlikely resurgence by the Socialists, she will face a run off against the Republican candidate François Fillon.
Most people expect an “anyone but le Pen” voting shift will smooth a path to the presidency for Fillon, but, given everything that has happened this year, it would be foolhardy to bet the farm on that outcome given Le Pen’s party represents more than anti-immigration and anti-Europe now – it is also anti-establishment, and if we have learnt anything lately it is that “the establishment” is not viewed favourably.
The message from Philip Hammond’s Autumn Statement was just how much his hands are tied by the UK’s current financial situation. He is not alone in this, and more radical administrations (think Donald Trump) will find themselves similarly hamstrung. What will the revolutionaries do then? John Wyn-Evans is head of investment strategy at Investec Wealth & Investment