Another day, another record. Germany’s blue-chip DAX index of the country’s 30 largest companies surged past the 12,800-points mark Monday morning on the back of a victory by the business-friendly Christian Democrats of Chancellor Angela Merkel in a critical state election over the weekend.
And yet, German executives don’t seem to be joining the party. A survey of the investment habits of CEOs, conducted every two weeks, has fallen into neutral territory for the first time in two years. That means top German managers are no longer buying German stocks.
That was just one of three surveys Monday that signaled the DAX’s record highs may not last much longer. Investors and private-equity managers are starting to get a little skittish, too.
If the insider barometer’s reputation as a counter-indicator holds true, the next weeks in the stock market should be rather muted. Olaf Stotz, Frankfurt School of Finance and Management
True, many bank analysts have been busy raising their forecasts for the DAX’s performance ever since the index broke through a record high in April that had held for nearly two years. But a series of so-called softer sentiment indicators – surveys of traders, CEOs and private-equity investors – are starting to tell a different story.
The "insider barometer," which polls members of executive boards and supervisory boards across German companies, has a history of serving as an early-warning sign that investor sentiment may soon be about to change (see graphic below). The barometer fell to just below 110 points this week, its lowest level since the DAX hit its last record high in May 2015.
“If the insider barometer’s reputation as a counter-indicator holds true, the next weeks in the stock market should be rather muted,” Olaf Stotz, a professor specializing in asset management at the Frankfurt School of Finance and Management, which carries out the survey together with Commerzbank, told Handelsblatt.
This doesn’t mean the German index is in for a period of panic selling – even the insider barometer would need to fall below 100 to signal that executives are actually selling stocks – but it should serve as a warning sign for investors to stop and think, rather than to keep pushing the index to new heights.
Investors themselves are also getting a bit more uncertain: The DAX opened Monday by falling 0.5 percent as at least some traders appeared to take stock of their profits, but switched course by noon as other traders pulled back on their short positions, driving the DAX up 0.5 percent to a new high. By 2 P.M. local time it was once again trading down slightly for the day at 12,760.94.
A weekly survey of more than 2,400 investors by Handelsblatt also shows the momentum may be shifting. Only one third (32 percent) still see the DAX trending upward, down 14 percentage points from last week. About 60 percent now see the index either topping out or moving sideways.
That feeling that the party may be coming to an end is being felt in other areas of the German finance sector, too. A third separate survey of private-equity managers in Germany, which reached a record high at the end of last year, has also fallen back slightly. The indicator by development bank KfW and the banking association BVK was down 0.2 percentage points in the first quarter of this year.
“The current year certainly won’t be an easy one for financial investors. Private equity funds are getting ever more capital from institutional investors, but at the same time there are a limited number of attractive takeover targets,” said Alexander Glawe, a private-equity expert at Credit Suisse.
This gets to the heart of the problem both for the DAX and the financial sector more generally: Many Germans simply don’t know what do to with their money these days. It is part of what has driven indices like the DAX to record heights – Germans, once leery of stocks, are finding few alternatives in the current era of record low interest rates – but it’s also part of the reason many here are worried the good times can’t last too much longer.
“This morning already looked a little like a buying panic,” said stock exchange analyst Stephan Heibel. “If the DAX breaks 13,000 over the course of this week, we should really be careful.”
Christopher Cermak of Handelsblatt Global in Berlin and Jürgen Röder, Susanne Schier, Peter Köhler and Robert Landgraf of Handelsblatt in Frankfurt contributed to this story. To contact the authors: [email protected]