Tags: Faber | European | Stocks | Fall

Faber: European Stocks Poised to Fall 20%

Thursday, 06 September 2012 10:31 AM

European stocks could erase three months of gains and enter a correction period, tumbling as much as 20 percent in the coming months, said Marc Faber, author of the Gloom Boom & Doom report.

Don't expect European equities to collapse, as company stocks have proven to be solid assets, though gains are due for a breather.

“I think European markets could easily correct 10 to 20 percent from the recent highs that we have had, but I don’t envision new lows,” Faber told CNBC.

Editor's Note: The Final Turning Predicted for America. See Proof.

“I bought some shares in Portugal, Spain, Italy and France, and after I bought them in the last three to four months, the market rallied strongly,” said Faber, who accurately called the 1987 stock market crash in the United States.

“I am negative on equities for the next three months, I’m not saying they will collapse, but they will go down and I will add to my positions when the market corrects here.”

Fears that Greece will default on its debts and exit the eurozone have roiled markets in recent years, especially since a Greek exit could pressure the larger Spain and Italy to consider following suit.

Should such an scenario play out, buying opportunities would occur in the stock market, where companies would adapt to new economic realities and possibly grow.

“In the worst-case scenario that the euro collapses and Spain and Italy, for example, exit the eurozone, the markets of these countries will adjust to the upside,” Faber said.

“If you are an investor in one of these countries, what are you going to be more comfortable holding — the deposits in one of your banks or equities? So, I think a lot of money is flowing into these equity markets because the perception is that they are safer than bank deposits.”

European Central Bank President Mario Draghi earlier announced plans to buy short-term government debt to lower borrowing costs in countries such as Italy and Spain, where bond yields have soared on fears both countries are finding it hard to finance themselves, Spain especially.

Economists say the move aims to keep eurozone countries that are fiscally strained but still solvent in the eurozone.

"By turning itself into an 'effective backstop' for countries that meet tight conditions on fiscal repair and pro-growth reforms, the ECB signaled today more clearly and in much more detail than before that it will not let any solvent euro member go bust," said Berenberg Bank economist Holger Schmieding, according to the AFP newswire.

Editor's Note: The Final Turning Predicted for America. See Proof.

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