Greek Exit Could Trigger 50% Fall in Euro Stocks: Analyst

On Tuesday May 15th, stocks posted a major loss following news that Greek depositors withdrew 700 million euros from the nation’s banking system and after Greece’s leaders failed to agree on a coalition government.The S&P 500 closed at 3-month lows, while the Dow logged its ninth loss in the last 10 sessions. Major averages are on pace for their biggest monthly losses since last September.

Euro zone stocks could plummet up to 50 percent if Greece makes a disorderly exit from the euro zone, a research note from Societe Generale said on Friday. In the note, Claudia Panseri, head of equity strategy at Societe Generale, said the DJ Euro Stoxx 50 [.STOXX50E 2147.92 -13.95 (-0.65%) ], an index of leading euro zone shares, could halve if a disorderly Greek exit caused two years of declining profits in the euro zone, plus rising bond yields and equity risk premium.

Panseri said a Greek exit would put France and Germany at risk of contagion as well as peripheral European nations. “While central bank stabilizing measures are likely to be taken in the event of contagion, with the high correlation among euro zone indices, we believe there would be an increased risk of spillover after a Greek exit from the euro zone,” she said.

According to Panseri, euro zone corporate profits could fall by 20 percent to 30 percent on a Greece exit, due to lower consumption and fiscal tightening in the remaining member countries. Bond yields could widen 100 basis points to 200 basis points. However, she warned that investors should avoid bank stocks. “Financials are the most impacted by the rise in sovereign risk,” she said.

Investors should look for shares for which there is a positive correlation between relative stock performance and sovereign credit default swap levels, said Panseri. Also attractive are companies with free floating market capitalization above 5 billion euros ($6.26 billion), strong balance sheets, and high exposure to emerging markets (assuming a soft landing in China).

Consequences of fiat money crisis are that the type of money that can never be printed, gold and silver, prices will be driven higher. You won’t find anything better than the performance of precious metals over the past decade as the dollar has declined. To stay on the winning side of history dictates that precious metal investors will yet again come out on top.

Article Source: http://www.cnbc.com/id/47566743

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