German Stocks Enter Bear Market as Panic Selling Trickles In

  • DAX Index is down 22 percent from its record in April
  • Traders are looking for positions that are easiest to exit

The German stock market has given up all its gains for the year and entered a bear market.

Seven straight days of plunges sent the DAX Index down 22 percent from its record in April. Just today, it tumbled the most in almost four years as a rout engulfed markets across the world and industries.

The slump in the German benchmark gauge accelerated this month as concern over global growth grew after China devalued its currency. China is Germany’s biggest non-European trade partner, making its exporters more vulnerable.

Germany Fits

“It will certainly be at the forefront of declines in Europe,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London, referring to the DAX. “This could go down quite a bit. Traders are looking for the positions which are easier to get out of, more liquid, and where they have the biggest exposure -- and Germany fits those counts.”

Every single stock in the DAX has fallen in August. Utility RWE AG has plunged to a record, and Deutsche Bank AG is having its worst month since 2011. Daimler AG and BMW AG have tumbled more than 15 percent in August, giving up gains after automakers led the first-quarter rally in European equities.

Traders took out a record $382 million last week from a U.S. exchange-traded fund tracking German stocks.

Cheap Stocks

Some aren’t so concerned. The DAX trades at 12 times estimated profits, compared with 14.6 times for the Stoxx Europe 600 Index, and Germany’s economy is forecast to grow more than that of the euro area this year. Those valuations are attractive to Frankfurt-Trust Investment’s Raimund Saxinger. 

“A lot of the bad news is already priced in,” says Saxinger, a fund manager who helps oversee $18 billion. “For the time being, there’s little indication that we’ll see a global slowdown and in Europe. If anything, growth is rather stabilizing in Europe. The markets should soon find the bottom.”

But it’s still too soon to jump back in, according to Credit Suisse Group AG’s Anja Hochberg, who says the market is too volatile. A gauge tracking swings in German stocks jumped 31 percent on Monday to its highest level since 2011.

The last time German equities entered a bear market was in 2011. It took more than a year for the DAX to recover its losses.

“The DAX is suffering more than others,” Hochberg said. “Markets have moved into a growth-scare mode.”

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