By Lionel Laurent
(Bloomberg Gadfly) --Donald Trump has promised voters his very own kind of Brexit upset. For investors, the real thing is still more troubling.
Key gauges of investor uncertainty and market volatility are lower now than they were in the run up to Britain's vote to leave the European Union in June.
Take Europe's economy. The Baker, Bloom and Davis composite index of economic policy uncertainty, which draws on everything from newspaper coverage to economic forecasts, shows Europe is still in greater turmoil than the U.S. -- months after the Brexit vote.
It's a similar story in volatility: both the VIX and its European equivalent the VSTOXX are still below their levels in the days before the Brexit vote.
And even after weeks of outflows from U.S. equities and a search for safe havens like gold and government bonds, the Bank of America Bull/Bear sentiment indicator has only fallen to a three-month low of 4.3 -- well above the 1.6 low seen at the worst point of the Brexit sell-off.
This may all be a marker of complacency rather than concrete analysis. Markets look like they are basically pricing in a Clinton victory -- and would be roiled by a Trump upset.
But even if that were to happen, expect European equities -- which have already lagged their U.S. counterparts this year -- to bear the pain. Strategists at Deutsche Bank estimate that for every 10-point rise in U.S. economic policy uncertainty, the STOXX 600 index falls 1.5 percent. They reckon a Trump win would imply a drop of some 5 to 10 percent for European stocks.
Fund managers are still more concerned about Europe. An October survey of investors by Bank of America-Merrill Lynch put EU disintegration as the top risk, followed by a bond-market crash, and then a Republican winning the White House race.
They've got good reason to be concerned about Europe, not least because the referendum on Italy's constitutional reforms in December could shake markets, as my colleague Marcus Ashworth has noted.
Europe's fundamentals don't help either: earnings per share for the region's companies have shriveled over the past decade while they've climbed for U.S. peers.
Equity risk premiums for the euro zone and the U.K. stand at 9.4 percent and 9.7 percent respectively, higher than the U.S.'s 7.6 percent, according to Bloomberg data -- meaning investors are demanding higher returns in Europe to compensate them for for higher risk of investing in the region.
It would take a lot more than the results of today's election to narrow that gap.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.