DAX-Sentiment: Blockupy the Bears?

16 May 2012. FRANKFURT (Börse Frankfurt). Today marks the start of a four-day long anti-capitalist demonstration in Frankfurt. Dubbed ‘Blockupy’, the protest aims to literally close down Germany’s financial capital with Occupy support drafted in from across Europe. The city’s bankers have already decided it would be wiser not to be there when the protesters arrive. Investment bank trading floors have been temporarily transferred to redundant facilities in other cities; the ECB Governing Council brought forward a meeting planned for today so that they and most of the staff could stay home. Boerse Frankfurt’s poll of domestic institutional DAX investors, many of whom are based in the city, reflects some 20 percent fewer respondents. This too could be a result of Blockupy. There is no reason to believe that this will bias the results one way or another, as those absent could just as easily be bullish as bearish.

A cynic might say that fund managers who are so anxious about the arrival of a few anti-capitalism protesters, might also be similarly cautious in their investing, i.e., not aggressively bullish. But we consider that such assumptions go too far. On the contrary, there is a good deal of consistency in this week’s responses. Firstly, the stark market polarisation we noted in the previous poll is still very present; it even increased slightly. A further seven percent of the panel left the ‘unchanged’ camp – this category has not been so unpopular since December 2009 – wholly in favour of the bulls. The pessimists lost a few members this week but, at 39 percent of the entire panel, their number is comfortably above the long-term average. This development is quite common in a polarised situation: the respondents that are most flexible in their opinions are those who were previously uncommitted; everyone else, part from the odd profit-taker, tends to stick to their guns.

The ones who were able to take profit were, of course, the bears, as the DAX lost some 1.6 percent on the week. But it only managed to make a fractionally lower intraday low compared to the previous week, so this is not what managers would describe as ‘downside follow-through’. As we indicated last week, under these conditions, one had to expect some buying. This might sound counter-intuitive given what is obviously a worsening development in the eurozone economic crisis. However, one must remember that investors quite reasonably consider the DAX reaction to the Greece news to be overdone. For instance, following the news that Greece would proceed with new elections, the DAX promptly fell two percent. Two percent! US markets also fell, as did the Asian indices on the subsequent day, all supposedly on the back of Greece. The total loss of worldwide stock market capitalisation on a single day was greater than the entire GDP of the Hellenic state. So clearly, at least in the short-term, the market reaction could not be due solely to a Greek election or even to the prospect that a eurozone member could leave the club.

A broader, grimmer, and longer-term concern serves as a backdrop to the development in Greece. In another recent survey of global fund managers the country that came after Greece as the most likely to deliver a negative surprise in the next 12 months, was not Spain, Italy or Portugal, but France. Investor anxiety has leapfrogged the eurozone periphery completely and settled firmly in the core. So although the DAX may have neared the levels where many domestic investors believe the correction is starting to look well done, we doubt their bullish ambitions extend beyond the highs seen just a couple of weeks ago.

© 16 May 2012/ Joachim Goldberg, cognitrend