DAX-Sentiment: DAX buyers peer at the euro, not the eurozone

30 May 2012. FRANKFURT (Börse Frankfurt). It is tempting to say that not much is happening in the DAX, given that this is the second consecutive week where the index has traded in the low 6,300s at survey time. However, if one compares this to the performance of, say, the Spanish IBEX35 benchmark, which lost seven percent in the last fortnight, the German equivalent’s zero looks glowing. The resilience of the DAX in the face of the latest bad news from Spain is something that investors have certainly recognised. Today’s poll, for instance, reveals a unique shift by nine percent of the panel from the unchanged camp into the bullish. The proportion of bears is unchanged, which means that the polarisation of opinions across the panel has become even starker.

The apparent resilience of the German index does not mean that it has escaped its share of the deteriorating eurozone crisis – so far in May it has lost nine percent – but the strategy of selling DAX stocks on worrying eurozone headlines has yielded mixed results since the start of the year. Furthermore, the institutional investors polled by Boerse Frankfurt were not among the ‘sellers in May’; at the start of the month, they were generously bullish and only became cautious after prices had already fallen. Hence, they are less likely to perceive how far it fell in the first half of the month, and more likely to perceive how little it fell in the second half.

Professional investors must also have looked with curiosity at the result of a poll this week by the German news broadcaster n-tv. It revealed that over 40 percent of German citizens would prefer to have the D-Mark back. This reflects a startlingly relaxed attitude among the population to what might be the consequences of a return to Germany’s legacy currency: a sudden and massive appreciation and a corresponding deterioration in export chances for many German firms. That such a U-turn has only a tiny probability of occurring and, instead, that the euro’s steady weakening might actually improve the outlook for exports beyond the currency area, is possibly also a factor that could have increased the appeal of the DAX to domestic investors. However, here too it is worthwhile to note that the level of external demand is a better determinant of a country’s export success than the exchange rate. Given the crisis in the eurozone, the slowing growth in countries like China and the even more sharply falling currency of a country like India, faltering external demand might erect more export hurdles than the weakened euro takes down.

The emergent bullishness of domestic investors might just be based on the perceived resilience of the German market, but at least it is not biased; they do not seek to justify a past decision with this new opinion. However, from this starkly polarised position, it is difficult to envisage a new trend. Whether the index moves higher or lower from here, there are ample profit-takers on both sides.

© 30 May 2012/Gianni Hirschmüller, cognitrend