In a research note on the election, Craigs says on current polling, National would ''probably scrape in, but only just''.
With less than 20 weeks until the September 20 election, National was leading the polls in terms of the highest party vote.
But under MMP, a victory was far from secure to the incumbent leadership, Mr Timms said.
Craigs recommended having a portfolio positioned for either a red or blue outcome.
''We believe markets have become a little too complacent with regard to the uncertainty surrounding the election outcome and we remind investors that it remains finely balanced.''
Growth in the economy was not likely to be significantly affected by the outcome of the election, he said.
While Labour was generally considered to be ''less friendly'' to the business community, a number of policies could be supportive for growth and for markets.
Compulsory KiwiSaver would be positive for capital markets and it could be argued a capital gains tax would affect equities less than residential property, due to equities being less reliant on capital gains for their long-term returns. A lower path for interest rates and the currency would also support some sectors, Mr Timms said.
Craigs recommended adding exposure to companies with less down side under a change of government including those with low regulatory risk, such as Metlifecare, Trade Me, Freightways and SLI; offshore earning such as Fisher and Paykel Healthcare, Diligent, Mainfreight, The a2 Milk Company, and Delegat's Group; and exposure to additional support for low and middle-income earners such as The Warehouse Group and Hallenstein Glasson.
Companies already regulated, such as Vector and Auckland International Airport, might also be more insulated from any potential changes.
Craigs also recommended limiting exposure to companies already highly price which might face added regulatory scrutiny, such as Sky Network Television and Sky City Entertainment. Increasing Australian and global equities for diversification should also be undertaken, Craigs said.
''We expect the New Zealand dollar to peak in 2014, before showing some modest weakness over the next few years. Labour seems determined to speed up this process through policy changes and should they win, markets may take care of this for them if they - or their potential coalition partners - are perceived to be less stable or higher risk than the current regime.''
Craigs' electricity New Zealand equity portfolio had a 12.5% exposure to the sector. It was ''generally appropriate'' for most investors to hold 10% to 15% of their New Zealand equities in the electricity sector, depending on their risk profile, requirement for income and other individual circumstances.
The electricity sector had outperformed the market strongly during 2014, partly because there was an anecdotal feeling National was likely to remain in power and the industry structure would remain largely unchanged.
''We believe the election may still be a tight race and we recommend investors take a fresh look at where their sector exposures lie. If large positions exist, consider rebalancing to move closer to appropriate levels.''
