LONDON Investors are scrambling to shore up global portfolios against wild market swings ahead of the Nov. 5 U.S. presidential election and backing out of assets stuck in the crosshairs of uncertainty, from big tech stocks to European government debt.

With Republican Donald Trump and Democrat Vice-President Kamala Harris in a neck-and-neck race, likely offering policies that create deeply divergent outlooks for geopolitics and world trade, money managers are braced for months of volatility.

"Markets hate uncertainty and, as the polls head towards 50-50, this is about uncertain as it can get," said Ross Yarrow, U.S. equities managing director at investment bank Baird.

Trump is viewed as likely to lift U.S. corporate profits with tax cuts, but also to hike import tariffs which could be bad news for European and Asian exporters as well as U.S. inflation.

Harris could crack down on banks, go easier on China and stick to President Joe Biden's cautious foreign policy play-book.

Wall Street's S&P 500 share index dropped 2.3% on Wednesday, its largest daily fall since December 2022, as big tech stocks that dominate U.S. and global indices flailed, before the rout coursed through Europe on Thursday morning.

Investors, on their guard for more selling, were looking to small cap stocks, UK assets and gold as possible havens.

"We think there's the potential for markets to get more nervous about the U.S. presidential race," said Trevor Greetham, head of multi-asset at Royal London.

Crucially for world markets, investors fear both competing for votes with big spending plans, driving potential U.S. debt market ructions and whiplash for global stocks and bonds whose valuations are underpinned by long-term Treasury yields.

"We could find the U.S. Treasury market starts to get antsy towards November if both (candidates) are saying they will spend more," he added. "And that could upset stock markets."

The yield on the 30-year U.S. Treasury rose above its two-year equivalent last week as big investors swerved long-term U.S. credit risk and the budget deficit approached $2 trillion.

Greetham said he was reducing global equity holdings and had a negative stance on government bonds.

"There's a lot of debt in the U.S. and we have the election bringing uncertainty about who is going to be in power and what sort of spending policy they will have" said Nathan Sweeney, head of multi-asset at UK asset manager Marlborough.

Sweeney said he had cut exposure to longer-term U.S. Treasuries and equivalent euro zone bonds, which faced new risks, he said, from European states hiking debt for defence budgets if Trump cuts support for Ukraine.

Emerging market stocks and bonds were vulnerable to Trump's proposed tariff hikes, Columbia Threadneedle multi-manager investor Adam Norris said, because higher trade duties impact exporter nations' economies and currencies.

UK gilts could do well, Sweeney said, because Britain had already suffered bond market turmoil after ex-Prime Minister Liz Truss' chaotic mini-budget in 2022, and was unlikely to risk over-spending again.

Stock market volatility is ticking up from low levels, with traders switching between equity sectors as election odds shift.

Tech shares from the U.S. to Amsterdam have been rattled since Trump earlier this month proposed reduced U.S. support for Taiwan, an important hub in the chip-making supply chain.

The small-cap U.S. Russell 2000 share index has surged, meanwhile, on bets Trump's growth policies would benefit domestically-focused businesses over global tech.

This rotation could break down, Yarrow said, with shares in companies in tech or consumer industries whose supply chains rely heavily on China set to rise if Trump drops in the polls.

"The election makes markets tricky to navigate," Baird's Yarrow said. And with Harris yet to detail her business policies, he added, "I honestly don't know what the Harris trade would be."

Norris said he had reduced tech stock holdings because of high valuations and political uncertainty, while he was bullish on lowly-valued UK equities.

"We're focusing on (owning) things that we think can hopefully work independently, bumble along and stay quiet."

Benjamin Melman, chief investment officer at Edmond de Rothschild Asset Management, said a potential Trump victory made him cautious on European exporters because of tariff risks and preferred smaller, less global European companies.

Gold has surged for months, hitting a record above $2,400 an ounce, reflecting increased central bank holdings and rising Middle East tensions.

Columbia's Norris said gold was not a haven at current prices.

Rothschild's Melman, however, tipped the yellow metal to keep shining if the U.S. budget deficit, potential trade wars and geopolitical turmoil destabilised the dollar and wider currency markets.

"The dollar is losing some characteristics of being a reserve currency and populists are knocking at many doors in the Western world."

  - Reuters