It’s Back On in Germany as DAX Traders Send $638m to ETF

Updated on
Debt Woes No Drag for Europe Stocks

Debt Woes No Drag for Europe Stocks

Ralph Orlowski/Bloomberg

German stocks, rejected by investors in April, are luring them back in May.

Buyers added the most in a year -- more than 570 million euros ($638 million) -- to the biggest exchange-traded fund tracking the equities last week. The benchmark DAX Index had its biggest jump in two months on Friday, and options data show traders are betting on further gains. The most-owned contract is calling for a 2.5 percent advance by June.

After the DAX’s biggest monthly loss since July, valuations have sunk to their lowest level this year relative to Europe’s equities. The decline is a good opportunity to invest in German companies, according to Didier Duret of ABN Amro Bank NV’s wealth-management unit. Economists have increased the nation’s growth forecast each month this year, raising the appeal of its shares.

“Valuations were discounted by the correction, so it is a good thing,” said Duret, who oversees the equivalent of $177 million in Amsterdam. “Germany remains the engine of growth in Europe. If you act on fundamentals, you should buy.”

A 26 percent rally this year sent the DAX to a record and pushed its valuation to a five-year high in April. That month, a surging euro triggered concerns exporters would be hit, causing an 8.5 percent drop in the index through May 5. The index’s multiple fell to 14.9 times estimated earnings Friday, about 6 percent lower than that of the Euro Stoxx 50 Index.

The DAX slid 0.5 percent at 10:45 a.m. in Frankfurt.

ETF Inflows

After withdrawing money from the iShares Core DAX UCITS ETF for four straight weeks, investors have reversed course.

The DAX has rebounded 3.4 percent from a two-month low, and investor bets signal the rally isn’t over. The cost of options hedging against further declines has slumped 37 percent from an almost three-year high on April 28, relative to bullish contracts.

The market’s appeal is Germany’s growing economy, forecast to outpace the euro area and expand 1.8 percent this year. German business confidence reached a 10-month high in April, and the government expects domestic demand will climb at a faster pace than last year.

UBS Group AG is bullish on German stocks too, partly because of the country’s economy and partly because it’s a safe haven amid the Greek turmoil. The bank recommends investing in financial companies or utilities, which were among the worst performers in April. Deutsche Bank AG and Munich Re climbed last week after slumping more than 11 percent in April, while RWE AG rebounded 4.5 percent from its worst monthly loss of the year.

“Investors are well advised to refocus on the more domestic elements of the German economy,” Martin Lueck, an economist at UBS, and Karen Olney, a strategist, wrote in a note dated May 8. “Germany acts as the best euro-area safe haven while Greece sorts itself out.”

(A previous version of this story was corrected to reflect currency conversion in headline.)

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