The health of the euro zone economy, as signalled by Purchasing Managers' Index data, is consistent with a steep slump in equity markets before the year end, Deutsche Bank analysts write in a note.
The current levels of euro zone equity markets are consistent with a manufacturing PMI of 54.1 - firmly in expansion territory above the 50 waterline - research using the bank's regression model shows.
In reality, though, the September reading came in at 46.1, marking a 14th month of contraction.
If the index remains around that level for the rest of the year, euro zone equity markets should fall by 22 percent, Deutsche's model shows. Some of the steepest falls are due in France and Germany, at 32 percent and 24 percent, respectively.
The disconnect comes as euro zone equity markets have rallied strongly since June on expectations of central bank stimulus which were realised this month with fresh measures unveiled by the European Central Bank and U.S. Federal Reserve.
The Euro STOXX 50 index of euro zone blue chips is up 22 percent since the beginning of June.
"With such a simple regression we shouldn't take these numbers too seriously but they serve as a useful illustration that there is a deep disconnect between fundamentals and liquidity opening up even with slightly better numbers yesterday," Deutshe Bank's strategists note.
Based on the regression, Britain looks comparatively healthy, with its PMI, at 48.4, implying only a nine percent fall in stocks by end-2012.
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Keywords: MARKETS EUROPE STOCKSNEWS