A Labor election victory could be a shock for investors, but nothing like Brexit.
Markets have factored in a coalition victory on Saturday and there could be a negative reaction if Labor wins, AMP Capital head of investment strategy and chief economist Shane Oliver said.
"I don't think you'd see anything like the Brexit reaction, where the market had factored in a remain outcome, betting agencies were in favour of that, and it turned out to be a Brexit," Dr Oliver told AAP.
The share market could fall by one or two per cent if Bill Shorten claims victory, although it is difficult to predict, and a major factor will be what happens in the Senate.
"If Labor wins that would be seen as a bit of a shock and I think there would probably be a negative reaction, particularly for banks which would then be subject to a royal commission, and for property-related companies given the change to negative gearing," Dr Oliver said.
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If Malcolm Turnbull retains office there could be a slight positive reaction in trading on Monday, with the coalition viewed as more business-friendly.
"The enthusiasm might dampen down through the course of the week if it's found, as seems likely to me, that they don't have control of the Senate," Dr Oliver said.
Investor sentiment has been on a clear downward trend over the election campaign, particularly amid recent polls showing a tight race between the major parties while minor parties make clear inroads, CMC Markets chief market strategist Michael McCarthy said.
He said a sustained fall in CMC Markets' election sentiment index, which measures the impact of the campaign on the share market, suggests investors are pricing in three more years of protracted negotiations and compromised policy.
"A clear majority in the lower house is not enough," he said.
"If no party gains a clear majority in the Senate the ability of the new government to implement its agenda is curtailed."
It would mean much-needed structural reform is unlikely to be delivered, he said.
Dr Oliver said a Senate controlled by minor parties and independents would act as a huge constraint on government, meaning little prospect of getting government spending under control over the next three years, or implementing serious productivity-enhancing economic reforms.
