How would one's spending habits change if a pay cut or job loss was looming?

Most people would cut back on their spending, putting off any major purchases in anticipation of harder times.

Companies act in a similar way if they think that tough times are on the way. Business owners will defer large purchases and cut unnecessary expenses in anticipation of potential losses.

Fear of an impending economic slowdown can hurt the economy as a whole. When many individuals and companies decide to cut their spending, it often becomes a self-fulfilling prophecy that leads to an economic slowdown.

Economists call the feelings or opinions about the economy "sentiment."

Sentiment is more than just a whim. It is an important driver of business and investment decisions.

If a person is uncertain that he will keep his job tomorrow or if a company is concerned that an important client will reduce her next order, fear ensues. An individual's feeling of what the future holds plays a large part in decisions that he or she makes.

The graph below shows the close relationship between business sentiment and stock markets.

The Thomson Reuters/INSEAD Asian Business Sentiment Index comes from a survey of the six-month outlook of 118 businesses in Asia. A reading above 50 means there is a positive outlook.

The index was at 68 for the most recent quarter, which is a five-quarter high.

The MSCI Asia ex Japan Index tracks changes in stock markets in the region. Although business sentiment and stock market investor sentiment differ in their concerns, interests, motives and timescales, they move in a very similar pattern.

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Business sentiment improved slightly in the third quarter.

Less concern about the Brexit and the stabilization of the Chinese economy are big reasons for this improvement, according to the survey.

But there are still two big concerns in the Asia region: higher energy prices and Donald Trump.

Most Asian countries import more energy than they export. An increase in energy prices would also mean an increase in operating costs for many businesses.

A report on the survey also addresses "the policy uncertainty from a potential victory for U.S. Republican presidential candidate Donald Trump."  

His stated policies could hurt Asia. Trump's "fortress America" attitude and anti-globalization rhetoric would harm economies that rely heavily on exports and trade.

Antonio Fatas, a professor at the Singapore campus of international business school INSEAD, said that if Trump is elected, it would result in an immediate global recession.

Fatas is an expert on business cycles, macroeconomics and the role of central banks in economic growth. He closely examines the role of business sentiment in an economy's growth.

"Business cycles happen because business expectations change," Fatas said. "Trump would bring enormous uncertainty."

When people and companies are uncertain about the future, fear tends to dominate, which is bad for economic growth and stock markets.

So how can investors protect their portfolios?

Geographic diversification probably won't help because there is a high correlation between international markets. However, gold is great insurance when there is economic or political uncertainty.

Fatas also thinks that the effects of Trump's economic policies would go beyond the short term.

For example, international trade could slow down, he said.

Then there is the sharp rise in geopolitical risk, something that investors hate and the effects of the "Trump-ification" of developed markets.

If his odds of winning the election improve from a 7% chance of victory, according to The New York Times, it could mean trouble for investors.

Fatas thinks that investors could move toward bonds and other safer investments and away from stocks.

"If we see his poll numbers improve as the election approaches, it could be bad for markets," Fatas said.

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For more on what Trump might mean for Asia, even if he doesn't become president, and how to protect investor portfolios, see this special report.

This article is commentary by an independent contributor.

Kim Iskyan is the founder of Truewealth Publishing, an independent investment research company based in Singapore. Click here to sign up to receive the Truewealth Asian Investment Daily in your inbox every day, for free.