The market is drastically “underestimating the risks” of a government led by Jeremy Corbyn, according to Richard Buxton, chief executive of Old Mutual Global Investors.
Mr Buxton, who also manages the £2.3bn Old Mutual UK Alpha fund, estimated there to be a 40 per cent chance of a Jeremy Corbyn government.
He said younger voters "take the view that capitalism is not working for them, and if that is the view they take, they will vote for something else."
Mr Buxton said a prudent course is to have investments in UK listed companies that generate the greater part of their revenues from overseas.
David Scott, an adviser at Andrews Gynne in Leeds, said he believes it is prudent for investors to start preparing their finances now for the prospect of a Corbyn-led government.
He said: "The collapse of Theresa May's well-meaning but inept government and replacement by a neo-socialist Labour government is now a high enough risk that not to prepare for it would be naive, especially when valuations on most assets classes look historically very rich.
"Whatever you do, you will want to do it quite quickly as John McDonnell (shadow chancellor) has said that Labour wants to hit the ground running with tax rises and sweeping changes to employment legislation introduced immediately, and nationalisation proposals all on the shelf."
Mr Scott said it is likely that buy-to-let investors will suffer in the event of a Labour government led by Mr Corbyn.
He said: "The current government has not recently been kind to landlords, with buyers now having to pay a 3 percentage point surcharge on purchases.
"In addition landlords ability to write off mortgage interest against rents has been slashed. Socialism has a long history of loathing landlords, and Corbyn has already proposed rent controls, something which could well be the final straw for the finances of many small landlords.
"It also wouldn't be much of a surprise to see a new annual wealth tax of some kind imposed on holiday and rental properties. If this happens, being ahead of the crowd could prove to be very profitable."
Edward Bonham Carter, vice chairman of Jupiter Asset Management, said he would expect sterling to fall sharply and gilt yields to rise in the event of a Corbyn-led government.
But Mr Scott said the markets have been very forgiving of political shocks in recent years, and so the pound may not fall by as much as feared if Mr Corbyn were to score a victory in a general election.
But he does expect bond yields would increase and that would lead to a rise in UK interest rates, as the market would want a higher rate of interest to compensate it both for the weakness of the currency.
Jason Hollands, managing director at wealth manager Tilney Group, said: "When you scan through the last Labour manifesto, there is not a single proposed market-based solution in sight and taxes and regulations appeared to be the preferred mechanisms over incentives.
"While higher public spending and increases in public sector pay would theoretically have a stimulus impact on the economy, the benefits could easily be vastly outweighed by higher corporation tax and personal taxes, higher inflation, increased borrowing costs and more state intervention.
"There might be more support in the form of subsidies for areas segments like renewable energy I guess."
david.thorpe@ft.com
