The pan-European Stoxx 600 index is expected to plunge by up to 10 percent in the event of Republican candidate Donald Trump emerging as a clear winner in Tuesday's election, according to the latest estimates by analyst at Deutsche Bank.
"We project around 5-10 percent downside for the Stoxx 600 in case of a Trump victory, roughly half of that implied from a rise in U.S. policy uncertainty to 2011 debt-ceiling dispute levels. For a Clinton win, we would expect a partial reversal of the uncertainty already being priced, and a rise of around 5 percent," European equity strategists at the bank said in its latest research note.
The note stated that markets across the globe have been jolted by the recent narrowing in polls, adding that the rising uncertainty around Trump's policies would weigh further on equity markets. Trump's plans include significant changes in taxation, immigration and trade which could lead to considerable rise in U.S. policy uncertainty, the note said.
However, the European health care sector is likely to outperform under a Trump win, Deutsche Bank said. The sector has moved inversely to the probability of a Clinton victory over the past couple of months and has performed well in periods of rising macro uncertainty and dollar strength. Meanwhile, energy and banking could suffer under a Trump win, it noted.
"A rise in uncertainty is typically associated with falling bond yields – and we would therefore stay cautious on banks under a Trump win, though under Hillary (Clinton) they may rally in the near term," the note said.