By Randall Palmer
OTTAWA (Reuters) - A surge in support for Canada's left-leaning New Democrats is forcing strategists and investors to consider a once unthinkable prospect - the party which has never governed federally might now win the October election.
The New Democratic Party (NDP) scored a stunning upset in Alberta's provincial election this month, ending four decades of Progressive Conservative rule. And after two years at a distant third in national polls it is now at or near the top.
The NDP still faces a formidable opponent in the governing Conservatives, who have held power for more than nine years. The party has a large war chest and Prime Minister Stephen Harper is an experienced campaigner.
But the fact that people are talking about the possibility of a federal NDP government is a shock, said University of Toronto political scientist Nelson Wiseman.
"I would have given 1,000 to one (odds) to anybody – four months ago – that the NDP wouldn't form a government," he said.
The NDP has pledged higher taxes on corporate profits and stock options, tougher climate change action, increased minimum wage in federally regulated industries, and a pull-out from the coalition fighting Islamic State militants in Iraq and Syria.
"This is an ideology that is not corporate-friendly," said David Cockfield, portfolio manager at Northland Wealth Management in Toronto, who said he would likely invest more outside of Canada after an NDP win.
Only last year, the party eliminated the word "socialism" from its constitution. Leader Thomas Mulcair, 60, a former provincial politician from Quebec, has sought to assure voters a federal NDP government would be fiscally responsible.
The NDP surged to official opposition status in the 2011 election, due largely to the personal popularity of then-leader Jack Layton, who died soon afterwards.
Mulcair replaced Layton but was soon eclipsed by former Prime Minister Pierre Trudeau's son Justin, 43, who took over as Liberal leader in 2013 promoting "Hope and Hard Work," echoing U.S. President Barack Obama's "Hope and Change."
Both Harper, 56, and Mulcair have sought to cast doubt on whether Trudeau has the gravitas to lead Canada, and his support has eroded.
An Ekos poll released on Friday put the Liberals in third at 26.1 percent, behind the NDP's 29.6 percent and the Conservatives' 28.1 percent.
Ipsos Reid pollster Darrell Bricker likened the electorate to a hibernating bear, often inattentive, but said the Alberta election "seems to have caught the bear's attention."
The NDP's win in Alberta sent Canadian oil and gas shares tumbling on fears of higher corporate taxes and royalty payments to government.
KnightsbridgeFX.com President Rahim Madhavji sees an NDP win weakening the Canadian dollar, something he thinks the party would welcome because it would help manufacturers. He said it could also effectively eliminate growth in the oil sands and deter foreign investment with higher corporate taxes.
"Sentiment could sour in terms of Canada as an investment opportunity," he said.
An NDP government could also cool the housing market, hurting bank profits, but might spend more on public infrastructure, said Youssef Zohny, portfolio manager at StennerZohny Investment Partners+.
Still, many investors are skeptical NDP support will hold into October. Pollsters note that up to a point, NDP strength can help the Conservatives by drawing votes from the Liberals.
By contrast, in Alberta the right-wing vote was split, helping the NDP.
"I would not extrapolate the NDP's success in Alberta to the federal election," said Ed Devlin, head of Canadian portfolio management at bond giant Pimco. "Losing Alberta is a bit of a concern for PM Harper's Conservatives, but the federal election is about much different issues and personalities."
(Additional reporting by Mike De Souza, David Ljunggren and Leah Schnurr in Ottawa, Alastair Sharp and Solarina Ho in Toronto and Jennifer Ablan in New York. Editing by Jeffrey Hodgson and John Pickering)