Wallonisering - Opinie in DS

Markets are in a downdraft due to renewed focus on the problem that is at the root of the financial crisis: too much debt.

European and world equities remain under pressure, as contagious effects are increasing. Note that the correction came after euphoria (sentiment indicator at all time high). The correction should stop around the Dubai lows of November (-15%). But the market correction has a self-feeding character:

* business sentiment is likely to roll over

* employment is not likely to reverse in times of uncertainty

* risk premium will increase, and this is not positive for investments

* bad debts, delinquencies and toxic assets will resurface

This environment is very negative for the financial sector. They need to strengthen capital ratios, will be confronted with new loads of bad debts, and lower transactions. We repeat that bank equities and (especially lower) quality bank debt is to be avoided.

The reaction on the euro has been severe, but the debt problems are not typically euro :

• The UK has a much bigger problem than many other countries

• The US is also in need of budgetary restructuring (with a deficit that is as high as the Greek deficit)

Looking at the chart from Deutsche Bank (below) it is no surprise that Greece and Portugal are targeted by investors. Also Spain has a severe problem off current (and public) deficits. It is next in line...

Conclusion: markets are correcting from too optimistic levels and assumptions. The risk for a double dip is increasing. We are not in a buy on dip environment , but sell on strength.