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Current market levels imply a 5% discount is already priced into U.S. stocks, while European stocks carry an 8% geo-political discount, Goldman wrote. It estimated the U.S. 10-year Treasury discount at 25 basis points and 2% on the euro.
It said gold was trading at a 5% premium.
While this discount would evaporate if tensions ease, a flare-up would boost geopolitical risk premium further, the strategists said, basing their forecasts for global market falls on how much the rouble would depreciate.
“On that basis, the rouble is still more than 10% away from its maximum undervaluation level of the past two decades,” analysts Dominic Wilson, Ian Tomb and Kamakshya Trivedi told clients.
“This is likely to be a conservative benchmark, however, given that this past undervaluation came in 2014/15 at a time of collapsing oil prices and weak external balances.”
In that scenario, U.S. stocks would fall more than 6% and European stocks decline more than 9%, the U.S. investment bank said.
