"Most people I speak to can't imagine Hillary [Clinton] losing," the Australian-born fund manager tells BusinessDay from his office in mid-town Manhattan.

This is a common view in Wall Street, and with it sharemarkets around the globe. Investors have counted on a win for Democratic nominee Clinton for much of the presidential race and discounted the prospect of Republican rival Donald Trump sitting in the oval office.

But as the November 8 election gets closer and the outcome becomes seemingly less predictable, investors are scrambling to position their portfolios. Scenarios range from a cataclysmic market meltdown and a crowd into gold and bonds should Trump win, to business as usual nothing-to-see-here approach on a Clinton win.

Clinton represents the status quo, or return of the "establishment" that appeals to uncertainty-loathing markets.

But the wounds from the shock Brexit vote are still raw and investors are fearful of any event that might upset the second-longest running bull market in history, one that dates back to 2009 from the ashes of the global financial crisis.

Populist push 

Trump and Brexit are not unrelated events. Both are linked to the wave of populism sweeping through the West. Anti-European Union sentiment has crept through Europe as the Syrian refugee crisis began to peak.

The reality that this populist push wasn't going away anytime soon hit home when Britons voted to exit the European Union on June 23, an outcome thought impossible before that day.

"If Brexit has taught us anything, the rise of nationalism and anti-immigration sentiment in the Western world should not be ignored or underestimated," Sydney-based Ophir Asset Management portfolio manager Andrew Mitchell says.

"Trump must be considered a real chance."

The shock from Brexit triggered plunges in sharemarkets, including the ASX which fell 3.2 per cent to post its worst day this year, while the British pound dropped to its lowest point in three decades. Investors poured into bonds and gold.

Yet despite this recent lesson investors had, until this week, remained sanguine on the presidential election outcome. 

FBI impact

But revelations a week ago that the Federal Bureau of Investigation was  looking into a fresh batch of Clinton's emails – Clinton's use of a private email server while she was Secretary of State has been a hobby horse of Trump's, with him spectacularly declaring in one debate his intent to have her jailed over it – has alerted markets to the risks that loom next week.

"The US market reaction last Friday to the FBI investigation provided an interesting insight into how markets may react to a Trump victory," Mitchell says.

"US stocks and global equity futures dipped significantly while gold and safe haven assets spiked." 

Andrew Mitchell of Ophir Asset Management. Photo: Michele Mossop

Gold continued its run this week, surging above $US1300 an ounce, after polls, including the closely watched Washington Post-ABC News tracking poll, put Trump ahead of Clinton at 46 to 45 with little more than a week left before the election.

Mitchell, who along with co-portfolio manager Steven Ng took out the best performing fund in Australia last year according to Morningstar and Mercer surveys, has been adding gold to his portfolio as insurance against a Trump win, and the ensuing market shock.

Of course, after the initial reaction, the moves in markets are unlikely to be as simple as Trump equals risk-off and Hillary Clinton to risk-on.

Great unknown

The great unknown is how markets would adjust to having the divisive, controversial businessman as leader of the free world. The view from economists and analysts again range across a wide spectrum. The predictions fall anywhere from a short, sharp plunge in so-called risk assets such as stocks and currencies, followed by a rally, in the style of Brexit, to a full-blown global recession.

Simon Johnson, a former chief economist at the International Monetary Fund is in the latter camp, labelling Trump's promises to boost growth in the US to 4 or 5 per cent as "pure fantasy".

"It is far more likely that his anti-trade policies would cause a sharp slowdown," Johnson wrote in an widely shared opinion piece.

Yet a Trump victory is not only possible, it may be necessary, some argue, to shake up markets that have become complacent in the years following the GFC. High-profile economist at Saxo Bank Steen Jakobsen thinks a Trump win would be a mistake, but also the start of a social change. 

Saxo Bank's Steen Jakobsen. Photo: Louise Kennerley

"All macro changes in history originate from political mistakes," Steen says. "We are headed for a bumpy ride and we'd advise helmets. But this is also a ride which will clear out a lot of the false premises on which this market has been built."

One of those false premises includes the reliance on central bank easing, which has skyrocketed stocks to record highs and bond yields to record lows, negative in the case of Japan and parts of Europe.

Yet investors are still reluctant to let go of the promise of easier monetary policy, cheap debt and high growth, high-yield stocks trading at very high premiums. As Credit Suisse points out, Australia has the most expensive market darlings in the world, and buying those darlings at valuations of more than 30-times earnings is a strategy that has never fared well. 

Opportunity knocks? 

Indeed, a Trump-led market correction could provide a great buying opportunity for those brave enough to snap up some of those darling stocks.

AMP Capital chief economist Shane Oliver predicts a Trump win will trigger a 5 to 10 per cent plunge in stocks, with flows into safe haven assets such as the US dollar and bonds as investors fret about Trump's lurch towards protectionism.

"Australian shares would be particularly vulnerable to this given our high trade exposure," Oliver says.

That said, some of Trump's policies could even prove beneficial to markets.

But beyond the initial reaction, "sharemarkets could then settle down and get a boost, with bond yields and the US dollar rising to the extent that his stimulatory policies look like being supported by Congress and lead to a higher US budget deficit and tighter monetary policy", he says.

Two of Trump's platform policies, the promise of lower corporation tax and the abolition of the Affordable Care Act, known as Obamacare, both stand to put money back in the pockets of companies and investors. Trump's aggressive growth plan, less reliant on international trade, could also trigger a rise in energy stocks.

"As Trump seeks to cut trading ties with Arab countries, then this could create jobs all the way along the value chain for energy companies, whether that be mining, refining or selling," ThinkMarkets analyst Matt Simpson says.

"It won't initially matter if he manages to get these policies through as stock traders will bid stocks higher in the hope that he does."

Outlook uncertain

Longer term, the outlook is less certain. There are three possible outcomes from this election: a Clinton win with a Democrat Senate majority, Trump with a Republican Senate majority, and what is being touted as the most market-friendly: a Clinton win but with the Republican Party retaining Senate control.

Mitchell says that with Clinton seen as the status quo, the latter would be the least volatile outcome for markets in the near term.

Even a Republican sweep does not guarantee Trump's policies, particularly some of the more extreme ones, would make it through.

"Trump's power will be muted without the support of his party colleagues," Mitchell says. "It remains difficult to see how either will actually achieve anything once granted the presidency."

Clinton isn't exactly a panacea for markets either, even though she has been criticised by Trump for having Wall Street in her pocket.

Kibble, who runs boutique investment and advisory firm Australy​ International, worries about the as yet unknown influence of the left on her economic policies.

"Who will be advising her on the decisions? [left-leaning senator] Elizabeth Warren? That is worrisome," he says.

"Will we also be facing more debt to plug holes and fiscal cliffs?" A possible impeachment on the back of the FBI investigation adds more uncertainty. 

Election fatigue 

Kibble admits everyone around him is suffering from election fatigue.

"In New York city I think most people believe that after November 9 it all goes back to business as usual," he says.

There are bigger things for markets to focus on, notably central banks and the nearing limits of accommodative central bank policy. The Federal Reserve kept its key interest rate on hold at its meeting this week, but markets have now priced in a near 80 per cent chance of a rate hike at its meeting in December.

"The biggest issues that affect our lives aren't able to be affected by either candidate in the short term," Kibble says.

While the direct influence on markets is one of sentiment, the policies mostly likely to impact on Australia are those related to trade. Up for contention is the Trans-Pacific Partnership, which has been flagged by both candidates as up for review, although Trump has fired shots outright saying China is the world's biggest currency manipulator and the North American Free Trade Agreement, with Mexico in Trump's sights.

Both Trump and Clinton have promised large public infrastructure spending programs.

"If these are enacted, then cyclical stocks and companies leveraged to US consumption could ultimately benefit from the increased spend," Mitchell says.

Clues to impact

Yet the upside from a Clinton presidency would yield fewer lasting effects than the downside to a Trump win, Westpac strategists led by Sean Callow suggest.

"A Trump presidency would bring about the biggest changes in many decades in existing US arrangements on everything from taxation policy, to trade policy, social spending, immigration and geopolitics," he says.

The first of the three presidential debates on September 27 provides a guide on how the market may move on a Clinton win, Callow says.

Clinton's outperformance over Trump triggered gains in the Mexican peso, a key bellwether on Trump's performance due to his commitment to tighten trade agreements with its neighbour, and riskier currencies including the Australian dollar and Canadian dollars while US sharemarket futures rose and safe havens including the Japanese yen lost ground.

When Trump's poll performance began to pick up this week, moves were noted in safe haven assets including gold, the Swiss franc, and Japanese yen, while the peso fell around 2 per cent, and the Australian dollar shed the gains made after the Reserve Bank of Australia kept interest rates on hold on Tuesday.

Callow expects the market reaction to a Trump win to be much larger, forecasting sharp falls in the Australian dollar against the greenback, falls in the peso, and global sharemarkets, while gold will rally further, and US bonds climb along with the franc and the euro.

"There would also be considerable volatility during Wednesday's Sydney trading session, given the wide variation in times that polls close in each state and votes are counted," he said. 

Swinging day 

Like the Brexit vote, the result will be played out on a Wednesday in Australia, while the market is open, which means the market is likely to react to state-by-state results as they trickle through, rather than a decisive move on who wins.

What is evident is that the uncertainty has meant professional investors at least are sticking to the sidelines until the smoke clears.

"The [institutional investors] are very cashed up right now and many have been quietly preparing for a Trump selloff after the Brexit vote caught everyone out," Bell Potter's Richard Coppleson noted this week.

"[They] have basically gone into their tents and pulled up the zipper and said 'I'm not coming outta here until after the US election, I have been burnt twice this year, in January and then with Brexit."

Kibble sums up experiencing the election with the US itself as like "a circus". But that's not his main concern.

"Unfortunately this election is less crazy than the conditions in the US," he says.

"At the end of the day the anti-establishment candidates like Donald Trump and Bernie Sanders are not going away."

Clinton may win this time around, but in four years the stage has been set for "a real leader" to ascend.

"Unfortunately Donald Trump is the only political outsider left so he still stands a chance."