DAX OUTLOOK All Aboard the Roller Coaster

Spirits were high as the leading German stock index broke the 10,000-point barrier this week. Can it stay above this threshold next year?
Investors are excited after the recent DAX rally.

In many countries in Europe, people celebrate St. Nicholas’ Day on December 6 by exchanging pre-Christmas goodies and presents.

The gifts came in early for investors when the DAX stock index of 30 major German companies broke the 10,000-point barrier on Tuesday – and there is reason to believe the traditional end-of-year rally is for real.

In June, the leading index climbed above the magic five-digit mark and reached a record high of 10,051. But the euphoria didn’t last long, and fears of weaker global growth pushed the index back below 8,400 by mid-October.

Now that downward plunge has stopped, and most investment experts think it could reach another new record high soon. But they are still cautious about next year.

“The trend is upwards for the DAX, but that includes a roller-coaster ride,” warned Ralf Zimmermann of Bankhaus Lampe, the private German bank. “Global central bankers remain the true masters of the stock market.”

With the U.S. Federal Reserve’s decision to end its trillion-dollar bond-buying program, many investors are now betting on the European Central Bank (ECB). They want it to pump money into the economy with its own bond-buying stimulus. And low interest rates are forcing investors to buy more stocks these days, due to a lack of alternatives.

There are fears of loss in value, loss of money and severe swings in share prices. Andreas Utermann,, chief investment strategist, Allianz Global Investors

“Whoever wants to increase his assets, in view of worldwide low interest rates, should take more risk while preserving a sense of proportion,” said Asoka Wöhrmann, chief investment strategist at Deutsche Bank subsidiary DeAWM. He said he is looking to firms that pay their shareholders a regular dividend.

Ulrich Stephan, chief investment strategist for private and commercial customers at Deutsche Bank, is optimistic. He expects the DAX will climb to 11,500 points by the end of 2015. “The reason, along with the growth of the world economy, is a further decline of the euro against the dollar,” he said.

Commerzbank sees the index climbing to 10,800 for similar reasons. Not long ago the euro was headed toward $1.40, but it has now fallen to $1.24, making European industries more competitive. Commerzbank expert Markus Wallner said the euro could decline to $1.15 by the end of 2015.

With the U.S. economy growing and the euro falling, German companies expect to benefit in their important U.S. export market. But Mr. Zimmermann warned that some predictions for double-digit profit growth in 2015 and 2016 are unrealistic. He expects a 5-percent increase for DAX firms.


DAX On_the_way_to_an_all_time_high


Christian Kahler, chief investment strategist at DZ Bank, is more pessimistic. He does not expect a significant upturn because of weak growth in Europe. He predicts the DAX will be at 9,500 by the end of 2015, lower than today.

The prediction from Landesbank Hessen-Thüringen (Helaba) is similar: 9,800 points at the end of next year. “With their annual highs and lows in 2014, stocks laid out the value range for 2015,” said its chief economist, Gertrud Traud.

What is clear is that everything depends on rising profits, as only these can justify the higher prices for many stocks. The current price-to-earnings ratio for DAX companies is 17. Only when the higher profits hoped for in 2015 are factored in does the ratio drop to a healthy 13. Cyclical values for companies such as carmakers BMW, Daimler and Volkswagen are currently available at relatively favorable prices on the DAX spectrum.

In the coming year, investors will have to ride out significant fluctuations. “We are in a difficult economic situation,” said Andreas Utermann, chief investment strategist at Allianz Global Investors. “There are fears of loss in value, loss of money and severe swings in share prices.”

Bad news could lead to dramatic declines in the year ahead. But Mr. Utermann said stock values would rebound just as quickly.

So the DAX index will have to show it can stay above the 10,000-point threshold over the long term. Still, this week was a nice gift.


Susanne Schier heads the private investment team at Handelsblatt's Frankfurt finance desk. To contact the author: [email protected].