DAX Outlook

Forecasting a Year of Stagnation

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The decline of the DAX.
  • Why it matters

    Why it matters

    There are mixed opinions among experts over where the German stock market is headed in 2016.

  • Facts

    Facts

    • Expert forecasts over where Germany’s benchmark DAX index is headed in 2016 range from a low of 8,500 to a high of 12,400.
    • Economists at Deutsche Bank are relatively optimistic and predict global economic growth of 3.5 percent in 2016.
    • Experts say that the market will face roughly the same issues in 2016 as in 2015, including concerns over the Chinese economy and the refugee crisis in Europe.
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    Audio

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Every year, just in time for Advent, the season of prognosticating on the exchanges begins. Pencils are sharpened in the research departments of banks, scenarios are mapped out, index levels are calculated and favorites for the coming year are identified. This year, the results couldn’t be more mixed.

While DZ Bank predicts a “year of stagnation for the DAX” and Bankhaus Lampe also anticipates a zero sum game, Gertrud Traud, chief economist at Helaba Bank, expects the German benchmark index to reach a new record high. Postbank sees the DAX at 11,900 to 12,100 points in 12 months, while economists in Deutsche Bank’s twin towers expect the market to reach 11,700 points.  Experts at Cologne-based Sal. Oppenheim are similarly optimistic and expect the markets in developed economies to provide investors with an average return of 7.6 percent in 2016.

A standstill or a moderate price gain? Experts agree that the issues dominating the market in 2016 will be the same as this year’s major issues: concerns over the Chinese economy and its effects on global growth, the policies of the world’s central banks and, of course, geopolitical crises and the influx of refugees in Europe.

Experts are also mixed in their prognoses for global economic growth.

One of the optimists is Deutsche Bank, which expects the cyclical recovery in industrialized countries to continue and the Chinese economy to stabilize. The economy could grow by 3.5 percent worldwide and 6.5 percent in China next year, the bank predicts.

The experts at Sal. Oppenheim predict global economic growth of 3.6 percent. However, the industrialized countries will have to make do without strong growth impulses from emerging markets. “The emerging markets may have forfeited their role as magicians of growth for the foreseeable future,” said Martin Moryson, chief economist at Sal. Oppenheim. The moderate recovery in the euro zone is likely to continue, primarily as a result of domestic demand.

In contrast, experts at DZ Bank hardly see any growth impulses for the global economy, saying that the world economy will continue to grow by 3 percent a year. Bankhaus Lampe believes there will be a “difficult new year” and also expects modest growth of 3 percent. Rising corporate earnings are likely to be absent as drivers of the stock market, say pessimists, arguing that only the expansive monetary policy of the European Central Bank is still providing positive impulses.

“The main reason there hasn’t been a crash yet is that both oil and fresh cash are still cheap,” said Christian Kahler, chief investment strategist at DZ Bank. “The question is whether a soft exit from the unusual constellation will succeed.”

His prognosis is not very optimistic, with the DAX stagnating and ending at about 11,000 points by the end of 2016. Ralf Zimmermann, investment strategist for Bankhaus Lampe, delivers a similarly cautious annual outlook, although he does see the DAX ending the year 200 points higher. He expects some turbulence in the markets, with the DAX fluctuating between 8,500 and 12,400 – either driven by ECB liquidity or burdened by profit concerns. The experts at DZ Bank believe the market could drop to 9,500 points.

Ulrich Stephan of Deutsche Bank isn’t as pessimistic. He argues that relatively high valuations in the equities markets and moderate profit expectations could limit the price potential of many indices. Still, Mr. Stephan, the bank’s chief investment strategist for retail and commercial customers, predicts the DAX will close at about 400 points higher than today by the end of the year.

In a low interest-rate environment, stocks are still the preferred investment class, even though volatility is likely to increase. “For investors seeking a modicum of a return, there is no getting around stocks in 2016,” said Mr. Stephan.

It will certainly not be an easy year for investors. “Many are stuck in a crisis. The risk taken with bonds as well as stocks is not being suitably rewarded, in light of potential setbacks,” said DZ Bank strategist Kahler.

New monetary stimuli coming from the ECB could help push up the stock market into the spring of 2016, and the DAX could easily increase to 11,500 points or higher in the normally strong seasonal phase. In the medium term, however, Mr. Kahler believes it is likely that the markets will not be deceived for too long after the first flood of liquidity, as was the case in April 2015 and the spring of 2012. If uncertainty over the actual state of the global economy continues to rise, stockholders could be faced with new disappointments.

 

Jessica Schwarzer is Handelblatt’s chief correspondent on stock markets in Düsseldorf. To contact the author: schwarzer@handelsblatt.com

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