Car exports driving investors back to German shares

Germany, one of Europe’s cheapest stock markets, is starting to see a resurgence in investor interest.

Months of withdrawals from exchange-traded funds tracking German stocks are beginning to reverse, amid a stabilising euro and improving prospects for the country’s exporters.

The biggest ETF following the shares had three consecutive weeks of inflows for the first time since January.

The reason for the optimism may lie in the companies’ earnings potential, particularly for carmakers, according to MPPM EK’s head of trading, Guillermo Hernandez Sampere.

Vehicle sales to China accelerated in the first half of the year, after concern about the country’s slowdown sent the DAX Index tumbling at the beginning of 2016.

Daimler, which gets two-thirds of its sales from outside of Europe, said last week that preliminary second-quarter results are “significantly” better.

“The carmakers were on the brink because of China, and January-February made a lot of people leave the market,” Mr Hernandez Sampere said.

“The fear of a cool down or a recession was still hanging over the next quarter, but it hasn’t been justified. If you look at the companies, Germany equities are screaming ‘Buy me, buy me!’”

The DAX has rebounded 15% since its February low, more than the Stoxx Europe 600 Index. Volkswagen has climbed 24% and BMW has advanced 10% in the period, while other exporters such as steel company Thyssenkrupp and sportswear maker Adidas have jumped more than 50%.

And yet, the German stock measure now trades at 12-times estimated profits, near a record low relative to the regional gauge, as analysts expect better earnings.

That’s helped drive investors back to Germany, whose economy is forecast to expand 1.5% this year. While analysts estimate profits at DAX members will drop 1% this year, that’s better than the 4.3% slide expected for Stoxx 600 firms.

And for Germany’s auto-related companies, they project a 3.9% rise in net income. 


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