Weaker Euro Means DAX Jump to Berenberg in 2015

After seven separate forays above 10,000 were beaten back in Germany’s DAX Index this year, forecasters predict 2015 will be better.

The DAX, a total-return gauge that unlike most indexes reflects dividend payments, is clinging to a 3.9 percent advance in 2014, compared with a 4.9 gain in the Stoxx Europe 600 Index. Berenberg Bank’s Stefan Keitel, whose DAX call at the start of the year was among the most accurate, says the measure will rally 9.8 percent in 2015. The average of 12 forecasts compiled by Bloomberg News shows strategists expect a 7.9 percent rise.

Sanctions against Russia, oil’s decline and concern European Central Bank was providing too little stimulus held back the DAX in 2014 after it rallied 25 percent last year and 29 percent in 2012. Keitel says a weakening of the euro amid ECB bond buying and an improving economy will boost shares of German companies in 2015.

“Aggressive ECB policy will drive the DAX higher as the euro weakens,” Keitel, chief investment officer at Berenberg Bank in Frankfurt, said in an interview. He estimates the index will reach 10,900 in 2015. “We expect a re-acceleration of growth in Germany. This all together leaves us with a fairly bullish picture. But with maybe even more volatility than we experienced in 2014.”

Wild Swings

This year was marked by wild stock swings. When Russia annexed Crimea, triggering sanctions from the European Union and the U.S., German companies were among those hurt the most. Germany is Russia’s biggest trade partner after China, and the DAX lost 1.4 percent in March on concern over disruptions.

The German index then regained losses and reached 10,000 for the first time in June. It closed above that level three times that month and twice in July before resuming declines. The DAX fell to a one-year low in October after President Mario Draghi stopped short of spelling out for how long the ECB might buy assets to head off deflation.

The next month, speculation that the central bank will push ahead with broader stimulus measures spurred another rally, sending the DAX above 10,000 another two times in December. The ECB will review its stimulus program early next year, with analysts predicting it will start large-scale asset purchases, including government bonds, as soon as January.

Greece, Ruble

The index then dropped to a one-month low on Dec. 15 as oil prices deepened a slump, concern over the strength of the European currency union resurfaced amid Greek elections, and Russia’s ruble lost more than 40 percent this year. Companies from EON SE to Adidas AG have said the weaker ruble weighed on earnings.

The DAX closed at 9,927.13 yesterday. It fell 0.6 percent at 9:16 a.m. in Frankfurt today.

Deutsche Bank AG and UBS Group AG are the most bullish on German stocks for 2015, projecting a 16 percent advance to 11,500. DZ Bank AG is the only one that predicts a drop, estimating the index will end next year at 9,500.

Earnings at DAX companies will rise for a third year to a record 782.60 euros a share ($952.66) in 2015, more than double the projected profit for members of France’s CAC 40 Index.

With a price of 13.9 times analysts’ estimates for 2015 earnings, the German gauge trades at a lower valuation than the Stoxx 600, which fetches 15.7 times profits. The DAX multiple reached a record low versus the European index in October.

Economy Concerns

Christian Kahler, an equity analyst at DZ Bank in Frankfurt, expects a 4.3 percent drop in the DAX on concerns a slowing global economy will hurt the nation’s automakers and chemical companies. Growth in China, the world’s second-largest economy, will slow to 7 percent in 2015 from 7.4 percent this year, economists forecast.

“This is bread-and-butter business and will dampen profit growth in 2015 as the fundamentals for earnings growth are missing,” he said.

Automakers account for about 20 percent of the DAX and chemical companies for almost 10 percent, data compiled by Bloomberg show.

BASF SE cut its 2015 profit goals and abandoned its sales target in October. The chemical maker gets about 80 percent of its revenue from outside Germany. For carmaker Daimler AG, about 83 percent of sales come from abroad.

To JPMorgan Chase & Co.’s Emmanuel Cau, concern over growth is overdone. German gross domestic product will rise 1.2 percent in 2015, compared with 1.1 percent for the euro area, according to the median forecast in a Bloomberg survey. The global economy will grow 2.7 percent from 2.4 percent this year.

Deutsche Post AG and airline Deutsche Lufthansa AG will also benefit from oil prices at a five-year low, Cau said.

“Not all is as bad as people think in the euro zone,” Cau said. The strategist forecasts a 15 percent DAX rally to 11,400 in 2015. “Growth is going to get better, and the market is not priced for good economic news. This year could be the year when the DAX outperforms again and regains the leadership of the European market.”

The following table shows strategists’ estimates for where the DAX will end 2015.

Year-End Forecasts

Firm DAX 2015 Close Implied Move Deutsche Bank 11,500 16% UBS 11,500 16% JPMorgan 11,400 15% ING 11,100 12% Berenberg 10,900 9.8% WGZ Bank 10,800 8.8% Commerzbank 10,800 8.8% Nomura 10,500 5.8% DWS 10,400 4.8% Bankhaus Lampe 10,100 1.7% SocGen 10,000 0.7% DZ Bank 9,500 -4.3% ---------------------------------------------------------------- 10,708 7.9%
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