We take an upbeat view of the outlook for the German bellwether index not least because share prices have fallen back somewhat in the past few weeks. The prospects for the global economy remain rosy, so the DAX companies should be able to increase their profits in 2017/18 by 11% per year. We do not share the market’s concern that the strong euro will curb the DAX companies’ export business. Admittedly, the higher euro exchange rate is undoubtedly a drag on some international markets, but this is clearly outweighed by the positive effects of both the global economic recovery and especially the improvement of the economy in Europe. Looking at the next few months, there still seems to be enough drivers for corporate profit growth. We also believe that the euro is also unlikely to appreciate much further this year.
The valuation of the DAX has fallen recently (PER-2018e: 12.4, PBV-2017e 1.7). This corresponds to an earnings yield of 8% and is comparable with – among other things – the 0.4% yield on government bonds. The dividend yield is 3.3%. So the valuation is very attractive.
Investors in the equity market are unlikely to miss out on an upward spike at the moment. There is, therefore, no imminent need for any large-scale exposures. But as an alternative share purchases could be divided up into smaller lots. On the back of inflows from foreign buyers the DAX could then gather more momentum in the next few months, but to be realistic foreign buyers in particular are likely to wait for the outcome of the German general election.
We continue to take a positive view of the price prospects for Germany’s bellwether index at the end of 2017 (DZ BANK target: 13,000 points) and in mid-2018 (13,500 points).
The risks jeopardizing a continuation of the current upswing are an escalation of geopolitical conflicts and increasing discussion of “Italian issues” in the wake of the elections planned for 2018 in Italy (formation of a new government, banks, national debt). By contrast, the German elections scheduled for the end of September are unlikely to exert much influence on the equity market – the election forecasts and manifestos are too unspectacular and the latter lack any overarching market issues and any major differences between each other.