roller coaster

Stock market volatility shows fragility of German economy

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Down the up staircase. Source: Reuters

German stocks are not keeping their poise. Ceconomy shares plunged more than 20 percent Tuesday after the consumer electronics retailer issued its third profit warning this year. And online furniture dealer Westwing shed 13 percent from its IPO price on the first day of trading.

The losses in the two stocks came for different reasons, as did Monday’s sharp decline in stock market darling Wirecard, the newest addition in the DAX index of 30 blue chips. Taken as a whole, however, the volatility in German stocks and the downward trend marked by Tuesday’s six-month low in intraday trading highlights the underlying fragility of the country’s economy.

The risk of financial instability posed by Italy’s radical euroskeptic government and the frailty of Italian banks, the growing interest-rate differential of the euro to the dollar as the Federal Reserve tames robust US growth, and, not least, the dysfunction in a governing coalition facing crucial election tests this month have conspired to cloud the picture in Germany.

 

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The stock market’s volatility calls into question how successful this week’s IPO of automotive component supplier Knorr-Bremse will be even though it is substantially oversubscribed and much in demand from international investors.

Ceconomy may have been doomed from the moment it was spun off from the Metro retailing group in 2017. As a legacy retailer in the sector, Ceconomy is perhaps most vulnerable to the online onslaught from Amazon and others. With its large Media Markt and Saturn stores throughout Germany, it was caught flat-footed by the online revolution in retail sales.

The company on Tuesday revised its pretax earnings forecast downwards by 16 percent, to €400 million ($460 million), after a similar downward revision just three weeks ago. Analysts questioned how it was possible to lose a further €75 million from the previous forecast in that short space of time; they spoke of a “disaster” and “badly damaged” credibility. The stock fell below €4.50 at one point and lost nearly two-thirds of its value this year.

Westwing’s performance was less dramatic but nonetheless disturbing for the German IPO market. After first gaining slightly from its IPO price of €26, the stock quickly fell 13 percent to €22.51, dropping below even the lower threshold of its €23 to €29 offering range. Sources said the underwriting banks were in the market buying back shares to support the price.

Will Knorr-Bremse apply the brakes on IPO?

Last week, chip factory builder Exyte abandoned its IPO plans in the face of lackluster demand. Knorr-Bremse registered more enthusiasm for its IPO on Friday, which should be the second-biggest in Germany this year after Siemens’ spinoff Healthineers. The maker of brakes for trains and trucks will fix the price today between €78 to €80, which had tightened from the original broad range of €72 to €86.

For its part, online payments pioneer Wirecard on Tuesday announced ambitious targets for growth, allowing the share to gain 10 percent after Monday’s loss. The company said it aims to have at least €710 billion in transactions by 2025, compared with €1.49 billion last year, and €3.3 billion in Ebitda (earnings before interest, taxes, depreciation and amortization), compared with €413 million last year.

The roller-coaster ride of Wirecard’s share price, however, shows that entry into the premium DAX index won’t reduce the stock’s volatility.

Several Handelsblatt reporters contributed to this story. Darrell Delamaide is a writer and editor for Handelsblatt Global based in Washington, DC. To contact the author: d.delamaide@extern.handelsblatt.com.

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