The Italian election has led the recession-hit economy to a political deadlock, spurring a risk-off sentiment in markets.
Reacting to the news, renowned manager and market commentator Mohamed El-Erian of PIMCO issued a stark warning to investors at the Institutional Money conference in Frankfurt.
'Expect much more volatility. You can expect to see much more in terms of what we've seen in Italy over the past couple of days,' said El-Erian, who runs the mixed asset PIMCO GIS Global Advantage fund.
'The important lesson from Italy is that the wave of popular rejection that is going through Europe is in evidence,' he added.
Equity markets saw a sell-off on Tuesday following the news which saw investors flock into perceived safe haven assets such as German government bonds.
El-Erian cited political risk as the biggest factor facing investors and said his team at PIMCO were currently reducing risk across their portfolios.
'We are gradually reducing credit and equity risk. We are also buying real assets because we expect inflation to hit in at least five years,' said El-Erian.
The mixed asset investor added that he expects the Federal Reserve to continue on a path of loose monetary policy, echoing the view of fellow US manager Jeffrey Gundlach who said QE is set to continue for years.
El-Erian also added that the minutes revealed earlier this week from the US central bank were 'wrongly interpreted'.