Since the Corona crash in March 2020 and the subsequent increased bond purchases by the central banks, in conjunction with lavish government economic aid around the globe, the stock market has hardly seen a halt.
The Dax last reached an all-time high on August 13 of this year with a little more than 16,000 points.
And as always, the question arises whether his path will continue.
The tension in which the markets are currently operating is mainly determined by long-term factors. The further course of the pandemic and the increased inflation are viewed as something that will only lead to a short-term increase in volatility. The analysts of DZ Bank see only minor influences on the long-term development in view of the globally increasing Covid-19 cases.
They illustrate this with the MSCI World Index, which comprises 1,600 stocks: “At its peak, the MSCI World corrected 3.2 percent from its local high this year - so actually not at all.” LBBW also sees uncertainties for the near future, but sees that Fundamental framework intact: "In the short term, there is little to be said for a new rally, but in the medium to long term we remain positive for risk assets."
China is a factor of uncertainty
In the medium term, among other things, the development of corporate profits will be decisive, says Max Anderl from UBS Asset Management. He assumes that these will initially remain at a high level and that “the stock markets will be supported for a little longer by a combination of synchronized economic recovery and margin expansion in most sectors”. DZ Bank assumes that profits will continue to grow until the end of 2022 and thus represent an incentive to buy shares.
In an interview with the FAZ, Fürst Fugger Privatbank brings another factor into play for medium-term development: China. Two big companies made headlines there in the past few weeks that could be early indicators of shocks that could spill over into global markets in the coming months. On the one hand, this is the real estate group Evergrande, which is one of the most valuable companies in this segment worldwide.
However, Evergrande threatens to slide into insolvency due to its high debt. On the other hand, there is the state-owned financial group Huarong, which recently needed a financial injection from the Chinese state due to its impending bankruptcy - not only to maintain the company, but also to stabilize the markets. In view of these upheavals, Fugger Privatbank anticipates turbulence in the next three months.
To determine trends beyond the short time horizon, market participants and analysts are curiously looking at central bank policy. The recently published minutes of the latest meeting of the US Federal Reserve (Fed) paved the way for speculation that bond purchases would be slowed down. Many central bankers had called for this process, known as “tapering”, to begin earlier than previously planned. Now observers from the central bank symposium in Jackson Hole hope for more clarity about the Fed's exit scenario.
It has been agreed that bond purchases will be reduced in the near future, but the timing is not yet.
So it is also obvious that the tapering is already priced into the share price to a certain extent and that a final announcement should not cause any sudden reactions (tantrum).
“So far the Fed has successfully prevented a taper tantrum.
Now the market expects tapering without tantrum this year, ie a scaling back of the Fed measures without a violent market reaction, ”says John Vail, Chief Global Strategist at Nikko Asset Management.
Three percent over twelve months
Based on this assessment of larger short-term fluctuations if the longer-term earnings trend continues, the analysts of the financial institutions assume a sideways trend with regard to the development of the Dax up to the end of the year. After consolidation in the coming months, the German share index of DZ Bank and LBBW will level off towards the end of the year at just under 16,000 points or just below it. They believe that 16,500 meters will be possible by mid-2022.
It will also be exciting to see how the inclusion of ten new values affects the Dax. The new index members will be announced on September 3, and the new composition will come into effect on September 20. Institutional investors are likely to have already stocked up on the titles of the presumed promotion candidates, according to asset manager Invios. The courses from Symrise, Zalando, Airbus and Porsche, for example, have already reacted accordingly. If there should be a herd effect after the announcement of the concrete climbers, the newcomers could quickly risk a course correction. For the Dax as a whole, however, Invios sees a stabilizing effect. Not only because the risk will then simply be spread over more titles, but also becausethat the industries represented in the Dax would be diversified and more resilient.
The removal of the ten companies, however, will damage the little brother MDax. Because no other companies will join them. Thus, the weight on the German stock market is increasingly shifting towards the Dax. After the adjustment, it will represent almost 80 percent of the market capitalization of the overall market. This shift could come as a surprise to some market participants, according to Invios. "Many market players have not yet adjusted their evaluation models due to selective perception," says Managing Director Nikolas Kreuz.