Preparing for the Worst:
Managing Risk in Light of a Troubled Eurozone
Since the Greek crisis triggered the current atmosphere of instability in the Eurozone, investors have wanted to know:
"What are the economic effects of individual countries leaving the Euro - and how will stocks in my portfolio be affected if the Eurozone ceases to exist altogether?"
Listen to this FactSet podcast interviewing Dr. Laurence Wormald, SunGard APT's Head of Research, to find out how investors can gauge expected results from a possible Euro breakup, default of one of the PIIGS countries, and other scenarios for the troubled Eurozone.
We have used SunGard APT’s market risk tools to model different Eurozone break up scenarios. To model these scenarios, we used a global factor model incorporating macro-economic factors which enables us to estimate cross-asset class effects.
If five countries - Portugal, Ireland, Italy, Greece and Spain (PIIGS) - leave, APT's risk models predict downgrades and losses of up to 20% in investment grade corporate debt.
APT's risk analytics also predict losses of up to 15% on global equities indices with near-doubling of volatility. Even emerging markets indices could suffer losses of more than 25%.
The US equities markets are slightly less affected with losses forecast at about 10%, and the VIX going above 50.
Recession in the European countries would have real-economy effects, leading to enormous pressure on global equities markets, including exporters such as China and the commodities producing nations
Listen to this complimentary podcast below: