Worst Return in Developed Markets Not Slowing German Stock Bulls

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The worst return in the developed world is proving no deterrent to investors who want to speculate that Germany’s stock rally will rematerialize.

Banque Bonhote & Cie.’s Jean-Paul Jeckelmann says he bought Volkswagen AG and Adidas AG shares in the second quarter, when the DAX Index slumped 8.5 percent. He’s betting consumer companies will benefit the most from an improving economy. The gauge fell 0.7 percent on Thursday.

Jeckelmann isn’t alone. In the past two months, investors buying on weakness added more than $1.3 billion to an exchange-traded fund tracking German shares.

“It’s about the difference between the serious investors and the hot money,” said Jeckelmann, chief investment officer at Banque Bonhote in Neuchatel, Switzerland. “In the ETFs, you have a lot of institutional money, and they’re still buying the market even if it’s consolidating a bit.”

The DAX, which surged 26 percent from the start of the year to a record in April, was among the biggest gainers as the euro weakened. In the second quarter, the story changed: a rebound in the currency, a bund rout and finally the Greek impasse dragged German shares to a four-month low -- they became the worst performers among developed markets.

But with the nation’s economy forecast to climb 1.8 percent this year -- better than the euro area -- and the euro still down more than 8 percent against the dollar in 2015, investors are finding reason to be optimistic.

Too Volatile

Others, like Konstantin Giantiroglou at Neue Aargauer Bank, say the market may remain too volatile to invest in. A gauge tracking expected DAX swings has jumped 70 percent since a low in February. It reached a three-year high on June 30, after Greek Prime Minister Alexis Tsipras announced a July 5 referendum on creditors’ demands.

“We still don’t know on which side the Greek tragedy is going to end,” said Giantiroglou, head of investment advisory and research at Neue Aargauer Bank in Brugg, Switzerland. “There wouldn’t be that much contagion from Greece, but the market likes facts, and this is what it doesn’t have at the moment: a resolution.”

At the same time, some of the biggest companies, such as Deutsche Bank AG and Siemens AG, are in upheaval and finding themselves playing catch-up as competitors adapt more quickly to disruptive technologies and new challengers.

Yet JPMorgan Chase & Co. said last month it was time to start purchasing German shares again. The DAX now trades at 14 times estimated profit of its members, near its lowest level since November relative to the Euro Stoxx 50 Index.

“We have this Greek story that is spoiling a bit the party,” Banque Bonhote’s Jeckelmann said. “Otherwise, all the other signs are positive.”

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