Price gains in 2021: Dax record marks the beginning of a new decade of prosperity

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Many German citizens would like to tick off the year 2020 very quickly: Lockdown, short-time work or even job loss were getting on their nerves.

In contrast, the past twelve months have been fantastic for shareholders.

The Dax reached a record high of over 13,800 points shortly before the end of the year.

This imbalance should be over in the coming year - both shareholders and non-stockbrokers should then have reason to celebrate.

At least that is what the leading stock market strategists surveyed by WELT promise.

If the experts have their way, thanks to numerous Sars-CoV-2 vaccines, 2021 will bring a return to more normalcy in everyday life.

The economy will recover strongly after the slump, and that promises further price gains on the stock markets.

Driven by a synchronous upswing in the global economy, robust corporate earnings growth and still massive stimuli from governments and central banks, the Dax should reach further record levels.

There will be no alternative to equities for investors in 2021

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On average, the professionals see the German benchmark index at a good 14,300 points at the end of 2021.

That would be a premium of almost five percent compared to today's level.

For the German gross domestic product they expect an expansion of almost four percent - the strongest increase in a decade.

Despite the boom, hardly any expert is expecting a turnaround in interest rates.

Over the next twelve months, the professionals locate the yields on ten-year Bunds at minus 0.38 percent and thus only slightly higher than today.

According to these forecasts, there will be no alternative for investors in the coming year either.

Builders who have to take out new loans in the coming year can stay relaxed: they need not fear rising financing costs.

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However, the capital market survey of 21 leading banks and analysis firms reveals an irritating consensus.

Apart from the two extreme forecasts, there are only 2300 points between the lowest and highest Dax forecast.

Even with interest rates, raw materials and foreign exchange, the discrepancies are as small as they are rarely.

"We are experiencing something like a historical consensus," says Jim Reid, strategist at Deutsche Bank.

In the 25 years in which he has discussed the outlook for the coming year with investors, he cannot remember a time when so few investors - if anyone at all - have contested the central narrative.

"Is this a warning sign, or does it reflect the fact that the vaccines that are now available are changing the business world for the better?" Asks Reid.

In fact, the experts reckon that everyday life will normalize in the second quarter at the latest.

Although the required herd immunity will probably not be achieved until the second half of the year, the economy is likely to pick up again much earlier.

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The major bank JPMorgan is one of the optimists.

Your strategists see the greatest potential for stocks on both sides of the Atlantic.

With the Dax, they expect 15,900 points in a year, around 20 percent more than today, and they trust the S & P500 with 4400 points.

"The environment for stocks is better than it has been for years," says JPMorgan strategist Dubravko Lakos-Bujas.

All risks such as the pandemic, trade conflicts or political uncertainty would disappear.

At the same time, thanks to the cash injections from the central banks, interest rates remained low and liquidity conditions extremely favorable.

Lakos-Bujas expects a synchronous upturn in the global economy: "This is a dream scenario for stocks."

The investment bank Goldman Sachs speaks of the “roaring 20s”, alluding to the 1920s, when stocks had a decade of strong price gains.

Strategist David Kostin expects double-digit growth on both sides of the Atlantic.

The Goldman expert is certain that the economic upswing and corporate earnings growth are likely to surprise positively.

Is the “big end” of the crisis still to come?

But not all experts believe in the positive narrative.

Heino Ruland from the independent analysis company Ruland Research is one of the skeptics.

He considers the consensus forecasts to be completely excessive and makes several arguments.

After the debt-financed aid programs, the state will no longer be so generous in the coming year.

On the contrary: higher CO2 taxes and possible tax increases could burden companies and consumers.

Private consumption is unlikely to contribute much to growth, according to Ruland.

"The Covid crisis has accelerated transformations in large parts of German industry."

That leads to less employment.

"Many of the current short-time workers are unlikely to return to an orderly employment relationship," he says.

The big end of the crisis is still to come: “The current policy leads to the delay of bankruptcies.

The bankruptcy wave of the numerous zombie companies is still ahead.

What that means for banks and the state is pretty clear. "

Ruland expects an economic upturn of 2.5 percent in Germany in 2021.

“This will disappoint earnings expectations, which will exacerbate the overvaluation of the share.” He sees the Dax at 11,850 points in a year, ten percent lower than today.

Should Ruland prove to be right, the imbalance between shareholders and non-shareholders would also be overcome - but both groups would have nothing to celebrate.

ING expert Carsten Brzeski's forecast:

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“Even if many countries are now being put into a virus-related hibernation, rescue is in sight.

Of course there will be setbacks.

The distribution of the vaccine is neither logistically easy nor should the required herd immunity of 60–70 percent of the population be reached quickly.

But vaccines are the light at the end of the tunnel.

There is also positive news from the USA.

Europe can also benefit from an economic stimulus program under President Joe Biden.

The same goes for the improved prospects for transatlantic trade.

If the money flows from the European Reconstruction Fund in the course of the year and Asia continues to run as strong as before, there should be a synchronized upswing in the global economy for a long time from the second half of the year.

Of course, the situation is not all positive.

The uncertainty begins with the vaccine and ends with the fact that Europe keeps surprising negative people.

Bankruptcies and rising unemployment will put a stop to the absolute jubilation.

It is not certain whether all governments will use their “oomph” to drive the necessary structural change forward.

Upswing, a portion of uncertainty, higher national debt and structural change are the ingredients for which central banks only have one motto: keep it up.

Normally, loose monetary policy, economic stimulus programs and an upturn in the global economy speak for a positive development of the financial markets.

One can only hope that the stock exchanges have not rushed too far ahead and that the real economy can meet the high expectations. "

Carsten Brzeski is an analyst at ING Germany.

Progonse from Commerzbank analyst Andreas Hürkamp:

“Things are likely to be wild on the stock exchange next year.

After an unexpectedly rapid roller coaster ride, the Dax is expected to stand at 14,200 index points by the end of 2021.

The glut of money with a money supply growth of 53 percent in the USA and 14 percent in the euro area should initially push it to over 15,000 index points in the first half of the year.

With the expiry of the lockdowns, he is benefiting from many positive trends.

It is expected that Dax corporate profits will recover by 25 percent in 2021, driven by the German economy, which is likely to expand by 2.5 percent in the second quarter of 2021 alone.

A total of 14 DAX companies will shine with a higher dividend in 2021.

The euphoria on the German stock market should continue until mid-2021.

But then new storm clouds will gather in the background with slowly but steadily rising inflation expectations.

In the summer, inflation is likely to be above the two percent target set by the US Federal Reserve, and that will also push the yield on ten-year US government bonds to over one percent.

Strong growth is expected in this country, with an increase of three percent in the third quarter and two percent in the fourth quarter.

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But the Dax will run out of air in the second half of the year.

Fears of a short-term comeback of inflation with significantly less expansionary central banks are incompatible with the high valuations.

The price / earnings ratio for the German share index will fall from 18 to 15 again in the second half of the year.

Defensive sectors such as telecom, insurance and utilities are the winners in this uncomfortable environment. "

Andreas Hürkamp is an analyst at Commerzbank.