Markets are underestimating the risk of a surprise election result in Italy and the possibility of new elections within the year as support for "protest" parties in the country grows, analysts have warned.
Beppe Grillo, a comedian turned politician who has attracted huge support, has become a serious contender and could attract votes away from the country's traditional parties as voters express their frustration with established politicians. His popularity could have significant consequences for Italy's economy.
"Grillo is someone to take seriously," Wolfango Piccoli, director of the Eurasia Group, told CNBC on Wednesday. "He is taking votes from all sides, from disaffected voters on the center-left, the center-right…he is third [in the polls] and is still on the rise," he added.
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"It's got the potential to be messy," Piccoli warned investors. "It's a strange election, it's not an election among strong candidates…the one who is going to come out strongly and potentially could be the surprise of this election is Grillo…I would be careful."
Polls before the blackout showed that center-left and pro-European candidate Pier-Luigi Bersani is the election front-runner followed by former premier Silvio Berlusconi around 6 percent behind. Grillo was in third place and Monti's centrist bloc is in fourth.
Grillo's movement campaigns predominantly on an anti-Europe, anti-austerity and anti-euro message. He could mop up even more votes in the wake of financial scandals involving high profile politicians.
Analysts believe that the more likely scenario is a victory for Bersani. He is expected to form a coalition government with technocrat Mario Monti to give the center-left a majority in the Senate. In a televised debate on Tuesday evening, Bersani said he could form a coalition with Grillo, but Grillo has said he will not accept a tie-up with one of his opponents.
He told CNBC in an interview earlier this week that his party was "unstoppable" and the old political class "should leave".
Those differences could prove problematic for Italy in the wake of the elections, analysts warn. Investors could be unnerved by an unstable coalition government, potentially pushing the country's borrowing costs higher once again.
"It's not just the risk of an anti-austerity and anti-establishment backlash [that is being underestimated]," Nicholas Spiro, managing director of Spiro Sovereign Strategy, told CNBC.