Tags: Deutsche Bank | Stocks | Drop | 35 Percent

Deutsche Bank: Stocks Could Drop 35 Percent if Euro Contagion Spreads

Monday, 18 Jul 2011 08:44 AM

A new report from Deutsche Bank says stocks could drop 35 percent worldwide if the euro zone sovereign debt crisis worsens.

Even if the larger debt crisis is contained and doesn't have spillover effects in the real economy, Deutsche analysts see a fall of around 12 percent in the value of the MSCI.

According to the report, the failure of euro zone politicians to resolve sovereign debt problems has pushed up the equity risk premium (ERP) on stocks. If this trend persists and the crisis of confidence becomes a Lehman-style financial crisis, Deutsche Bank has calculated that MSCI World stocks could lose 35 percent of their value.

"A disorderly adjustment on the European sovereigns will inevitably lead to a global recession, leading to a significant fall in corporate profitability."

This would cause significant underperformance in the financial sector, causing it to fall as much as two-thirds and causing vulnerability in financially levered sectors including utilities, industrials, telecoms and consumer discretionary businesses.

Asia, Japan and Europe, which are more operationally levered, would be hit hardest, according to the report.

Under this scenario, recovery would take a long time, according to Deutsche Bank. "Given the magnitude of the problem, we do not expect a sharp economic recovery like in 2009 and we model an economic recovery only in 2015," the report said, adding that investors should look to the S&P and to the healthcare, energy and consumer staples sectors for safety.

ETF Trends reports that Campbell Soup lifted food and consumer staples exchange traded funds after the company announced a plan to raise soup sales this year by moving away from discounts and lower sodium.

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A new report from Deutsche Bank says stocks could drop 35 percent worldwide if the euro zone sovereign debt crisis worsens. Even if the larger debt crisis is contained and doesn't have spillover effects in the real economy, Deutsche analysts see a fall of around 12...
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Monday, 18 Jul 2011 08:44 AM
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