German Stocks Show Signs of Life After $368 Billion Wipe Out

  • Benchmark index rebounds after worst quarter since 2011
  • Rout was an overreaction poised to reverse, strategist says

After German stocks lost as much as $368 billion this year, their appeal is slowly coming back.

The benchmark DAX Index has rallied 6 percent in October, set to beat the Stoxx Europe 600 Index for the first month since June. Shares that were battered the most during the rout are rebounding, with investors snapping up companies trading near record lows relative to the broader market. The DAX climbed 2.5 percent on Thursday, more than any other western-European market.

“The markets are ripe for a major technical bounce,” said Bernd Ondruch, managing partner at London-based Astellon Capital Partners, which oversees $700 million. About 70 percent of the firm’s assets are invested in German-speaking countries. “Once you have that growth scare, it’s only natural that Germany would underperform during that period. But once we have the bounce, it would outperform as well. This has made German stocks look more attractive.”

Germany, China’s biggest trade partner in Europe, saw its shares tumble 12 percent last quarter after concern over a slowdown in the world’s second-largest economy took hold, just as Volkswagen AG’s cheating scandal erupted. Those sent the valuation of the DAX to 13.3 times estimated profits of its members, 16 percent below that of the Stoxx 600.

While strategists have lowered their year-end targets for the German index, they still project it will rebound another 4.6 percent by December. European Central Bank stimulus will help boost the nation’s economic growth by 1.6 percent this year and 1.8 percent next, according to the median forecast compiled by Bloomberg.

Yet with stock volatility at its highest levels since 2011 this year, many investors remain skeptical.

“I don’t think things have actually turned around, it’s just stabilization,” said Barthelemy Debray, a fund manager at Old Mutual Global Investors in London. His firm oversees $31 billion. “I fail to see a strong catalyst, what’s really going to lift the market?”

For one, EON SE and RWE AG have rallied more than 20 percent this month as the German Economy Ministry said the nation’s utilities have enough to pay for the decommissioning of nuclear plants. SAP SE surged 17 percent after reporting that business-software sales outpaced those of rivals. Daimler AG and BMW AG jumped more than 11 percent, while VW regained 2.7 percent.

Traders went overboard in the selloff, according to Ralf Zimmermann, a strategist at Bankhaus Lampe in Dusseldorf. While he says VW’s crisis hurts earnings prospects for DAX companies, he still estimates the index will end the year at 10,800, up 5.5 percent from yesterday’s close.

“We are still in the process where this overreaction is reversed,” he said. “Any news on stabilizing China would mean that the prior underperformance should at least to some extent be reversed. There is some more momentum in the future, but the sky is not the limit.”

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