The result will rock the Italian economy, the European economy and the entire capital market. In addition, it could possibly bring the Five Star Movement political party into power in Italy.
As one of the European Union’s vulnerable spots, Italy will remain beset with many other problems. At present, its gross domestic product is as low as it was in 1990. Beaten only by Greece, the level of its public debt is second-highest among the EU members, at 133 per cent of GDP.
Italian banks are struggling badly over non-performing loans, while the unemployment rate in October was as high as 11.6 per cent.
Consequently, the country is in grave need of continuous capital injection from the European Central Bank. However, voters’ rejection of Prime Minister Matteo Renzi’s call for constitutional changes could lead to early elections and the Eurosceptic Five Star Movement could gain support. That party has pledged to carry out a referendum on whether Italy should stay in the EU.
With this scenario, it’s clear that the situation will lead to capital flight and severe market turmoil.
Overall, the economic and banking crisis together with high public debt will continue to be a huge challenge for the Italian government. The Italian banking crisis will be a major concern for investors and a big factor towards a dim future of the European capital markets.
European stock prices, especially in the banking sector, have dropped consistently since the end of November. Italian banks are suffering badly from bad loans – currently 18 per cent of total loans – and a tremendous debt burden caused by placing a very large portion of bank bonds directly with domestic households. Therefore, retail holdings amounted to close to 40 per cent of total debt securities. This percentage is four times that in Germany, and eight times those in both Spain and France.
Moreover, not long ago, the government attempted to add liquidity to the banking system by injecting money (bailout). This measure remains a controversial topic among economists, whereas the recent bail-in system forces borrower to bear the loss. This new implementation had a tremendous impact on the Italian banking system.
Unless resolved, the banking crisis will be a major obstacle to Italy’s future economic recovery.
The Italian economy after the “no” vote will remain fragile. It will face many structural problems, including high government debt, a fragile banking system and inefficient public administration and civil justice. Therefore, it is unlikely that annual GDP growth will exceed 0.5 per cent, the lowest among developed countries. According to the International Monetary Fund, the Italian economy is unlikely to regain its pre-2008 growth rate within the coming decade.
The “no” vote is expected to cause medium-term fluctuation in the European stock markets. The level of risk depends on how the new government moves forward, and how the EU and the ECB react. Therefore, investors are strongly advised to pay close attention to Italian developments in order to make appropriate investment plans under an acceptable level of risks, and to consider suitable strategies for balancing their portfolios.
Contributed by Asset Plus Fund Management.
Investment entails risk. Investors should thoroughly study prospectuses, product features, return conditions and risk before investing.

The outlook for EM Asia sovereign ratings in 2017 is “stable”, but potential vulnerabilities include increased protectionism, a stronger US dollar and higher political risk across both advanced and emerging economies.
Nine of the 11 Fitch-rated EM Asia sovereigns currently carry a “stable” outlook.
The median of Fitch’s real GDP growth forecasts in 2017 for the 11 EM Asia countries it rates is 5.5 per cent, substantially higher than in other regions (3.5 per cent for EM Middle East and Africa, 2.9 per cent for EM Latin America and 2.8 per cent for EM Europe).
Without China, which makes up 69 per cent of the region’s gross domestic product, the weighted average growth is expected to be 6.3 per cent in 2017 and 6.4 per cent in 2018, from 5.9 per cent in 2016.
All EM Asia entities except Mongolia are expected to grow faster than the medians of their rating categories.
Global trade in 2017 will present limited upside for EM Asia and a long-term growth impetus presented by the Trans-Pacific Partnership now seems off the table after President-elect Donald Trump said the US would pull out of the agreement. Some Asian countries, such as Vietnam, were expected to gain substantially from the TPP.
It is unclear to what extent regional alternatives, such as the China-led Regional Comprehensive Economic Partnership, can make up for this loss.
Domestic sources of growth include an infrastructure boost and the implementation of ambitious reform agendas in some Asian economies, such as India and Indonesia.
Room for monetary and fiscal policy easing differs from country to country. Limited room seems to exist in EM Asia for a policy rebalancing from monetary to fiscal stimulus similar to what Fitch expects in advanced economies.
Among EM Asia entities, Fitch expects a widening of the fiscal balance in 2017 only in the Philippines (to minus-3.0 per cent of GDP in 2017 from minus-2.4 per cent of GDP in 2016).
Public debt levels are high in some countries, such as India, and credible fiscal policy rules prohibit further fiscal stimulus in Indonesia.
A strong US dollar in 2017, which Fitch anticipates, amid signs of the US Federal Reserve’s intentions to raise interest rates, and increased public spending in the United States, could weigh on economies with large external refinancing needs and/or those that rely heavily on foreign-currency-denominated debt.
A strong dollar has already weakened the external-debt dynamics of Mongolia and Sri Lanka – exacerbated by low commodity prices in Mongolia’s case – and the combination of this and severe fiscal slippage prompted Fitch to downgrade both sovereigns this year.
EM Asia countries are relatively exposed to a severe China slowdown scenario, though that is not Fitch’s base case. Vulnerabilities are building up further in China, as policy settings continue to prioritise rapid growth over macroeconomic stability and debt levels across the economy continue to rise, at least until 2018.
However, Fitch says it believes China still has the administrative and financial resources to address these imbalances without a disorderly adjustment, even though its capacity to do so diminishes with time if not addressed.

After yesterday’s monthly meeting, committee chairman Isara Vongkusolkit said the 4.4-per-cent decline in overseas shipments in October could result in a full-year export contraction of 1 per cent, or flat growth.
Moreover, the weakening of the Malaysian ringgit could affect Thai export competitiveness.
“The economy could grow below the previous projection of between 3.3 per cent and 3.5 per cent this year, due to weakening shipments. However, the committee is confident of seeing economic growth of 3.5 to 4 per cent next year,” he said.
Factors of concern for next year are the new trade policy of US president-elect Donald Trump, the direction that the Federal Reserve takes on the US policy interest rate, increased oil prices, elections in the Netherlands, France and Germany, and uncertainty over economic growth in the European Union, he explained.
Isara said the key engines driving the economy next year would be the government’s Bt422-billion budget disbursement and investment projects, the handout to 8 million poor people, and tax-deduction measures in relation to shopping and travelling – with the latter measures alone injecting as much as Bt30 billion to Bt40 billion into the economy at the end of this year and the beginning of 2017.
The JSCCIB chairman also said the private sector expected the government’s payment of Bt100 billion to 18 provinces from February to September next year should help stimulate the economy by another half a percentage point.
As to export performance next year, the committee foresees growth in the region of zero to 2 per cent.
Isara said private enterprises expected the domestic economy would witness a clear recovery in the second and third quarters of next year, although the agricultural sector would continue to struggle the most due to uncertainty over crop prices.
The private sector also foresees lower profits and sales next year, while selling prices are expected to remain unchanged.
Meanwhile, the joint committee has called for the government and the Bank of Thailand to facilitate financial transactions via commercial banks between Thailand and Iran, following the US announcement in January of the lifting of sanctions on the Middle Eastern country.

Slowing foreign investment is anticipated this month as foreign interests wait to see what US trade and investment policy will be next year.
Mongkol Puangpetra, senior director at KTB Securities (Thailand), said higher oil prices and the Thai government’s stimulus measures were positive factors for the SET.
Apichai Raomanachai, deputy managing director for research at Apple Wealth Securities, forecast the SET Index to swing in a range of 1,4881,540 points this month, likely driven by more than Bt2 billion in purchases of LTFs and RMFs and energy stocks after the Opec’s decision for lower production. At this level, the forward pricetoearnings ratio is 14.014.5 times.
Opec slashed its daily crudeoil production by 1.2 million barrels to 32.5mmbd, which could boost the oil price to US$55 per barrel next year. “The energy group gains after the Opec decision,” Apichai said.
He noted that the US Federal Open Market Committee would convene on December 13 and 14, which would likely strengthen the US dollar against currencies in Asean and cause foreign capital to move out of the stock markets of Thailand, Indonesia and the Philippines (TIP).
In Thailand, KTB Securities expects foreign investors to continue sales of Thai stocks, or not to buy them, which will pressure the SET and make other investors afraid of stock purchase during this period, Mongkol said.
The SET Index yesterday rose 0.98 per cent or 14.82 points to close at 1,516.48 with trading turnover of Bt39.69 billion as foreign investors netbought Bt1.24 billion.

IT IS crucial for the film and other creative industries in China to develop their own intellectual properties to maintain healthy growth, a forum heard.
China aims to be the world’s No 1 film market, reaching an audience of 2.5 billion and earning US$15 billion (Bt534 billion) in box-office revenue by 2020. To achieve those goals, the creative industries are putting more emphasis on developing IP to help reshape the value chains of film, novels, online video, TV series, games, variety shows, music, theme parks and derivative products.
Emily Dai, Web drama general manager of iQiyi, a video-on-demand service based in Beijing, said many Internet platform operators had developed and produced their own content to cash in on the changes in viewing behaviour of Chinese audiences from TV sets to mobile devices and tablets.
“However, the critical key to facilitate the development of the IP industrial chain is the quality of the content,” she said.
Dai shared her views and thoughts at a panel discussion on “Strategic IP Management in China’s Film and Creative Industries”. The seminar was held last week in Hong Kong under a collaboration between the Business of IP Asia Forum and China Daily newspaper.
Liu Kailuo, president of Heyi Pictures, said the film industry needed to seek new healthy growth by developing derivative products to spread risk and to avoid over-reliance on box-office earnings. Liu pointed to a film of his own, “Surprise”, as an example. Through developing Web-based IP, this movie has been able to obtain 60 per cent of its total revenue from non-box-office earnings.
“Therefore, the IP development and creation should not focus only on content but also a whole pyramid. [Having an] online platform is very helpful for film development,” he said.
Although the film industry in China is expected to grow by at least 19 per cent a year through 2020, |box-office earnings in the second quarter of this year saw a slight decline, partly due to depreciation of the yuan.
However, the industry is still expected to reach 44 billion yuan (Bt227 billion) in total revenue this year.
William Feng, head for Greater China and vice president for Asia-Pacific at the Motion Picture Association (MPA), said the industry had to be patient in developing it own IP like in Hollywood, where some US filmmakers covered the costs of IP management before releasing their movies into the |market.
“What the Chinese movie industry lacks is not talent, capital or a market, but patience,” he said.
Xiao Fei, board chairman and chief executive officer of Beijing UP Picture Group, said IP incubation and creation were open sources of revenue and important for long-term growth.
“But it is hard to find talented incubators and creators, and the big question is how to promote China’s IP to global stages or markets,” he said.
Pirated content in China was one of the greatest concerns raised by the panellists. Li Lei, deputy director of Filmko Pictures, said being creative and telling a great story were the best way for the film industry to protect its intellectual property.
“Other people will find it difficult to copy if you are telling a fantastic story,” he said.