Elections are tough to trade. Just look at Trump, who was forecasted to be a surefire massive recession-maker if he somehow pulled out the election. Instead, he has led the market way up ever since being elected in November. Or Brexit. So of course, in France, Le Pen has "no chance."

But if she pulls out a surprising win, the markets could go haywire. Le Pen seems to think that if she wins, the money crowd will panic: A few days ago she talked about implementing capital controls in France if elected, to prevent a run on the banks.

But it's fair to argue the other way: Remember that after the Dow futures dropped 800 points on Election Night, the markets roared at the open on Nov. 9. And haven't stopped. You could add that after a panic sale in British stocks on the heels of the Brexit shocker, the iShares MSCI United Kingdom ETF (EWU) is up more than 18 percent.

National Front leader Marine Le Pen is expected to lose to Emmanuel Macron in France's presidential runoff election this Sunday. But for investors who monitor the markets and allocate assets globally but don't want to overreact — or underreact — here's a few ways to think about what a Le Pen shocker could mean for your money.

The risk-on European stock boom

France's $2.4 trillion economy is the sixth-largest in the world and vital to the continued viability of the European Union. Le Pen has indicated a desire to leave the EU and drop the euro.

"Macron's first-round victory sparked a 'risk-on' rally in the markets around the world," noted Neena Mishra, director of ETF research at Zacks Investment Research. "Investors are already betting that political risks have disappeared and have been pouring money into European ETFs."

In the past one-year period through May 3, the iShares Core MSCI EAFE ETF (IEFA) has taken in more than $11 billion. Its taken in more than $6.5 billion already this year. The Vanguard FTSE Developed Markets ETF (VEA) is above $6 billion this year as well. These ETFs are roughly 45 percent European developed markets stocks. These two ETFs have together taken in as much this year from investors as the No. 1 ETF, the iShares Core S&P 500 ETF (IVV). The EAFE index has outperformed the S&P 500 this year, 11.7 percent vs. 7.4 percent, according to Morningstar data. The much smaller, iShares MSCI France ETF (EWQ) is up 14.6 percent this year and 18.5 percent in the past year.

This big move into European stocks could come back to haunt investors.

"The rally we had following the first round of the French election on April 23 sets investors up for major disappointment if far-right leader Le Pen wins," said Mitch Goldberg, president of investment advisory firm ClientFirst Strategy. He said investors generally do well by brushing aside big events, mostly because either the bad event never comes to be or if it does, it isn't nearly as bad as anyone expected.

"Brexit and the Trump presidential victory are two glaring examples of that," Goldberg said. But he added, "I'm concerned that investors are getting a little too used to whistling past these events, a little too complacent. Bear markets are a part of investing, but investors clearly aren't in the mood to prepare for one."

Unlike Britain, which never adopted the euro and has long stood figuratively and literally apart from mainland Europe, France is integral to the EU. That means the "consequences of 'Frexit' would be far more severe than those of Brexit," Mishra said. "The European Union can survive without Britain, but not without France. France is a core member of the union. If Le Pen wins, markets around the world would start pricing in Frexit risks."

A Le Pen victory is a more immediate threat to France's economic reforms than to the future of the euro, said Paul Christopher, head global market strategist for Wells Fargo Investment Institute. That's because Le Pen would need to get the French General Assembly to go along with her plans to leave the euro zone, but her party currently controls only two of its 577 seats. Rather, Christopher sees a more pressing concern in Le Pen's plans to curb immigration and hinder recent French labor market reforms that make it easier to hire and lay off workers.

A Le Pen victory would also embolden anti-immigrant, anti-euro populists in Italy, Christopher said. "These markets (France and Italy) are trade-orientated, and such changes would be a setback for earnings and investors in both nations."

The iShares MSCI Italy Capped ETF (EWI) is up 10 percent this year and 12.5 percent in the past one-year period.

Both Mishra and Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, noted that investors could consider putting some money into safe haven ETFs like State Street's SPDR Gold Trust (GLD) a $35 billion ETF that holds physical gold. "Gold gets bid up in times of uncertainty," Rosenbluth said. Mishra also cited Guggenheim's CurrencyShares Japanese Yen Trust (FXY) and the iShares Barclays 20+ Year Treasury Bond Fund (TLT) as likely to profit from the short-term chaos that could ensue right after a Le Pen victory.

A destabilization of the EU would hurt not only companies based there but also those that do business on the European continent, Rosenbluth said. Investments that don't depend on Europe, such as U.S. telecom, utility and real estate holdings would be little affected by a Le Pen victory, Rosenbluth said. Vanguard's U.S. REIT ETF (VNQ), BlackRock's Dow Jones U.S. Telecommunications ETF (IYZ) and State Street's Utilities Select Sector SPDR Fund (XLU) may all seem attractive, he said. One broader headwind: a main attraction for investors is big dividend yields, which has been made less attractive as rates rise.

Goldberg expects the usual "flight to safety" investments — gold, U.S. Treasury bonds and Japanese government bonds, the dollar, and the yen — will be immediate winners if the bears are unleashed after a Le Pen win. Some investors may also bulk up on safe havens today, the last chance to prepare ahead of time for a Le Pen upset.

But one rule of thumb carries weight in the markets regardless of elections: "Buying on the rumor and selling on the news is literally part of Wall Street dogma," Goldberg said. "Once the event passes and investors see that the lights are still on, those assets will probably just sell off on a Macron victory, or have a quick pop up on a Le Pen win and then sell off," he said.

First Published:May 6, 2017 4:22 PM IST