European equities would drop in value by an estimated 20% if Portugal, Ireland, Italy, Greece and Spain (PIIGS) were to leave the eurozone, according to estimates from technology provider SunGard. The firm estimates EU banking stocks would be particularly hard hit and sustain a 25% loss, while global equities would also be severely affected with a 15% decline.
In this scenario, volatility in global markets could be expected to double. Corporate debt would also be hit as downgrades and losses would wipe off an estimated 20% of the value of high-yield corporate bonds.
In the event of a total collapse of the eurozone, European equities would sink 40% and global equities would decline 30%, claimed SunGard.
The company did the research using its APT risk system, which took several macroeconomic factors and modelled the impact of five euro breakup scenarios.
SunGard APT’s head of research, Dr Laurence Wormald, said there is a genuine risk of some kind of breakup, and suggested investors should prepare contingency plans.
“It’s important to realise that this is not a black swan, it’s a widely discussed possible event, and while unprecedented it can’t be classed as very improbable, nor would it be rare. Since 1945, 87 countries have left currency unions.”
©2012 funds europe
