Handelsblatt Interview DAX Vulnerable to Trump Trade War

The blue-chip DAX stock index could slump by 20 percent if Donald Trump puts up trade barriers because export-reliant Germany is more vulnerable to a trade war than other top economies, warns veteran fund manager Jens Ehrhardt.
Fund manager Jens Ehrhardt. Photo: Bloomberg

The DAX index of leading German stocks could slump to 9,000 points, a fall of more than 20 percent from current levels, if U.S. President Donald Trump carries out his threat to tax imports, said Jens Ehrhardt, a German fund manager with almost half a century of market experience.

Germany is more dependent on exports than the U.S., China or Japan and consequently has more to lose from a trade war, Mr. Ehrhardt, the founder and chief executive of DJE Kapital AG, told Handelsblatt in an interview during a fund conference in Mannheim, western Germany.

“If Trump throws a spanner in the works and curbs trade with a stroke of his pen and protectionism becomes an issue, Germany in particular as an export nation could have problems,” he said.

Before, Trump was categorized as a disaster, afterwards he was suddenly seen as a kind of messiah. The captains of industry lined up for audiences with him and that’s putting it mildly. But Trump could really stimulate the economy. Jens Ehrhardt, CEO, DJE Kapital

His remarks echo warnings from German business leaders and the government this week about the dangers of putting up trade barriers.

That’s the negative scenario. The positive one is that Mr. Trump might refrain from damaging international trade and that his promised economic stimulus measures will boost the economy and corporate earnings and trigger a broad shift from bonds into shares.

In that case, Mr. Ehrhardt said, the DAX could beat the all-time high of almost 12,400 points it reached in 2015 and hit 13,000.

Asked how he had experienced the surge in market sentiment following Mr. Trump’s election on Nov. 8, he said:

“Before, Trump was categorized as a disaster, afterwards he was suddenly seen as a kind of messiah. The captains of industry lined up for audiences with him and that’s putting it mildly. But Trump could really stimulate the economy.”

He said the market’s euphoria about Trump could last longer than people are expecting. “It makes me think of the U.S. entry into the war in 1942. At the time the U.S. created a boom with big state deficits. Trump won’t rearm the way the country did then. But he can boost the economy on a massive scale.”

“Assuming that happens, money would flow back into the United States. The dollar would go up. U.S. shares would be the favorites worldwide. The Dow Jones Index could climb from 20,000 now to 30,000. That wouldn’t surprise me. Then the Americans would have the best stock market and the best currency.”

But he said the role of central banks shouldn’t be underestimated.

“The European Central Bank will continue its policy of cheap money. In the U.S. the Fed could become more important if it works against Trump and continues increasing interest rates. If the president runs up big budget deficits with his policies the central bank would counter that in the second half.”

Asked to comment on warnings by some analysts that bond markets might crash following the recent increases in yields, he said: “The market is totally supported by the central banks. Without possible economic growth driven by Trump we would have deflationary tendencies. In that case U.S. government bonds for example would be a buy again.

“But for me a 10-year U.S. government bond is only a buy when it’s back at 3 percent. We’re still half a point short of that. European peripheral stocks will only become interesting again at that level. But if Trump really manages to boost growth that would be inflationary and bad for bonds.”

He predicted that gold prices and gold mining stocks would continue to increase. “The mines are not as indebted as they used to be, the managers are better and they’re not doing takeovers at astronomical prices the way they used to, and they know about finance.”

Asked for his take on currencies, he said it was too soon to bank on a recovery of the British pound following its declines in the wake of last year’s Brexit referendum.

“The Turkish lira has also slumped. I wouldn’t touch that. The lira is too hard to read because of Turkey’s politics. The Russian economy is doing badly, money is fleeing the country, there’s no legal certainty, corruption has got worse under Putin. And the oil price isn’ likely to rise further. So that won’t help Russia any more.”


Ingo Narat is an editor with Handelsblatt's finance section. To contact the author: [email protected]