Market sentiment: “The sudden love of euro equities”

22 January 2025. FRANKFURT (Goldberg & Goldberg). The fact that eurozone equities, of all things, were in particularly high demand in light of the inauguration of US President Donald Trump last Monday probably came as a surprise to many stock market participants. And the fact that the DAX has risen by around 4.5% since our last sentiment survey, reaching new record highs, was probably only partly due to the fact that the EU was not hit with tariffs on the very first day of Trump's presidency, at least not as feared. Rather, demand for eurozone equities emerged at the beginning of our reporting period. 

At least this is the impression left by the survey published yesterday by Bank of America (BofA), according to which international fund managers particularly favored eurozone equities: there was a drastic change compared to December. Whereas a month ago, a net 25% of respondents said they were underweight in eurozone equities, the latest survey even showed a slight overweight (+1) in favor of these securities. And when you consider that the overweight in US equities (19% of asset managers stated a net overweight, compared with 36% in December) was reduced at the same time, it becomes clear why the DAX has actually gained significantly more against the major US indices since last Wednesday. In other words, the first DAX impulses this year were favored, if not triggered, by international capital flows.

Skepticism among domestic investors

However, today's survey shows that the institutional investors we surveyed with a medium-term trading horizon do not share this opinion. Our Börse Frankfurt Sentiment Index has fallen by 9 points to a new level of -7. The biggest movement was at the expense of previously neutral investors, whose share fell by 15 percentage points. As a result, 80% of those willing to switch have turned bearish, while the group of bulls has only benefited from a fifth of this flow. The motivation for the new bearish commitments in the rising market is probably due to both political (USA) and macroeconomic fears, coupled with seemingly favorable selling levels.

The opposite trend can be seen among private investors. Our Börse Frankfurt Sentiment Index in this panel rises by 10 points to a new level of +12. At first glance, this results in a shift from the bears to the bulls in the order of 6% of all respondents. However, this shift is primarily attributable to investors whom we survey via social media. The other private investors, on the other hand, show a trend that we also find among institutional investors: The bottom line is that the bear camp is increasing by 4 percentage points (equally at the expense of the other two groups).

Against the capital flows

Today's survey has once again opened up a gap in sentiment between private and institutional investors. In our last survey, the latter in particular were largely undecided and unwilling to bet on rising prices. And one week later, the majority of them are very skeptical about the recent upward movement of the DAX, in stark contrast to the international fund managers in the BofA survey mentioned above.

Even if the pessimism of the investors we surveyed is not yet particularly pronounced, its emergence in a clearly rising market points to the risk of a first downturn this year. This is because the most recent sales were probably made some time ago. We can therefore well imagine that the bearish positions, which are presumably under water on average, could be covered for the first time on a setback in the 20,700/750 area. All in all, the sentiment situation for the DAX has improved. 

By Joachim Goldberg

22 January 2025, © Goldberg & Goldberg für boerse-frankfurt.de

The Börse Frankfurt Sentiment Index ranges between -100 (total pessimism) and +100 (total optimism), with the transition from positive to negative values marking the neutral line. 

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