How would prolonged deflation affect euro-zone equities?

It is tempting to think that a prolonged period of mild deflation in the euro-zone would be terrible news for equities. After all, Japan’s stock market generally fared poorly for much of the time between 1999 and 2012, when the general price level in that country was edging down. But we suspect that the stock market in the euro-zone would not suffer the same fate, given its much lower initial valuation.

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