On Dec. 4, Italian citizens will vote in a referendum on whether to overhaul their national constitution, which probably has to be amended if Prime Minister Matteo Renzi is going to push badly needed economic reforms through the country's complicated lawmaking process.
The vote is widely seen as determining Renzi's political fate, and he may resign if a "no" vote prevails. Opinion polls show most Italians opposing the proposed constitutional changes, which economists say Italy desperately needs if it's going to streamline its government and spark growth.
HSBC warned in a note to clients after the U.S. election that a global surge in anti-establishment feeling — exemplified by the U.K. referendum and the U.S. presidential election — could embolden populist views already widespread in Italy.
The elevated political risk in the country is starting to get priced into stocks and bonds.
Italian stocks have been on the decline in 2016 as the country grapples with slowing growth, high unemployment and distress in its banking system. So far this year the Italian benchmark, FTSE MIB, is down roughly 23 percent, compared with the STOXX Europe 600 index which has fallen about 7 percent. The FTSE MIB is currently trading at an eight-week low as investor concern around the outcome of the referendum grows.