Stock Blues

DAX in Bear Territory

Bear Frankfurt Bloomberg2
Is the bull making room for the bear yet?
  • Why it matters

    Why it matters

    Most analysts are still betting on a recovery in Germany’s blue-chip DAX this year, but the signs are increasingly ominous.

  • Facts


    • Germany’s DAX index fell below 9,000 points for the first time since October 2014.
    • The blue-chip index has fallen 16 percent since the start of 2016 – its worst-ever start to a year.
    • Most analysts are still predicting a rebound this year. Just at the end of December, analysts on average predicted the DAX would end 2016 at 11,800.
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It proved a bad omen that Germany’s annual carnival parade was canceled over serious headwinds in Düsseldorf on Monday. The country’s stockholders clearly weren’t in a good mood, either.

Germany’s blue-chip DAX stock index dipped below 9,000 points on Monday for the first time in more than a year over ongoing concerns that a global economic slowdown, both in China and in the United States, could threaten Germany’s export-reliant economy.

A collective “gasp” could be heard in the Frankfurt trading room as the barrier was crossed during afternoon trading, German television station NTV reported. Shares moved back and forth across the key threshold for much of the afternoon.

By closing in Frankfurt, the DAX was down 3.3 percent to 8,979.36, marking its lowest point since October 2014.

One trader said investors were in the process of testing the boundaries and “clearly wanted to see the DAX below the 9,000-point mark … only after that does it seem possible to create some wiggle room for a broader recovery.”

“When you’re wrong together with the majority, it doesn’t look as bad.”

Ernst Frey, economics professor, ETH, Zurich

The index is down about 16 percent since the beginning of 2016 – its worst-ever start to a year. Since reaching a high point of 12,390 in April, the DAX is down 27 percent.

That officially puts the index of Germany’s 30 largest companies in bear-market territory – measured as an annual drop of more than 20 percent.

Banking stocks were the biggest losers in the DAX. Deutsche Bank, Germany’s largest bank, the index’s worst-performing stock all year, plunged 9.5 percent on the day and closed at a record low of just 13.82. Commerzbank shares were down 9.45 percent on the day.

The DAX is hardly the only one suffering. Stocks globally have been racked with uncertainty for much of the year. Other major European stock indices, and Wall Street stocks, all fell more than 2 percent on Monday and have experienced significant drops since the start of 2016.

Christian Jasperneite, chief strategist at the German bank M.M. Warburg, described a “vicious cycle” that has been pulling down stocks the world over. Eugen Keller of Metzler Bank said simply: “There is no preparedness to buy.”

And yet, most analysts still remain optimistic that the global sell-off will eventually come to an end, and that stocks will begin rising again in the coming months.

“I don’t think that this is the beginning of a bear market,” Andrew Wilson, head of Goldman Sachs’ asset-management operations in Europe and global co-head of fixed income, said in an interview with Handelsblatt. “That said, the mood is very negative,” he added.

Mr. Wilson suggested the sell-off has been exacerbated by investors that are conflating separate events impacting the global economy. He argued the falling oil price, for example, was a result of supply shocks rather than weakening demand. China, meanwhile, was in a “transition” rather than a full-blown economic downturn.

“Of course, China is growing more slowly than previously, but the situation in our view is by no means as bleak as many believe,” he said.

Most analysts also remain more optimistic about Germany – at least over the longer term – and are refusing to give up their rosier forecasts. After all, it was only in December that financial analysts on average predicted the DAX would end 2016 at 11,800.

A weekly Handelsblatt survey, conducted by opinion research firm Animusx, found that most analysts in Germany expect the DAX to remain in a downturn for the coming weeks. Yet most still remain cautiously optimistic over a slightly longer-term period.

Just 19 percent feared the downward spiral would continue over the next three months, while 29 percent said they expected the index to “bottom out” over that time frame. About half of those surveyed predicted the index would move sideways or even climb higher in the next three months.

Ernst Frey, an economics professor at ETH in Zurich, suggests many analysts may simply be reluctant to revise down their forecasts so quickly.

“Revise after such a short time? That would make them look foolish,” he said, adding: “When you’re wrong together with the majority, it doesn’t look as bad.”


Christopher Cermak is an editor with Handelsblatt Global Edition in Berlin. Andrea Cünnen, Jessica Schwarzer and Ingo Narat of Handelsblatt in Frankfurt contributed to this story. To contact the authors:

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