Analyst on the stock markets in the crisis: "There is still room for improvement in the Dax"

Created: 04/28/2022, 09:28

By: Matthew Schneider

There are numerous containers in the port of Shanghai.

© Ding Ting/XinHua/dpa

Manfred Bucher, equity analyst at BayernLB, talks about the impact of the corona pandemic and the Ukraine war on stock markets worldwide.

Munich - The German Dax, the US Nasdaq and the Chinese Hang Seng are under pressure, the euro fell to a two-year low yesterday.

Manfred Bucher, equity analyst at BayernLB, explains what options investors now have.

Mr. Bucher, it is well known that fear and uncertainty are poison for stocks.

What is the situation on the markets?

We have a whole range of stress factors.

The US Federal Reserve has announced that it will raise interest rates in the next few meetings in order to combat inflation.

At the same time, we have an economic slowdown in the USA because the fiscal programs are expiring and rising inflation is taking away purchasing power.

In Europe, the risks of war are a major factor.

Added to this are the supply chain problems in China caused by the rigorous zero-Covid strategy.

Expert: "China must exit zero-Covid policy for economic reasons"

Shanghai recently reported a new high in corona deaths, is there an end to the lockdowns in sight?

There are tentative signals that policy may be changing.

It is a dilemma for the Chinese government.

On the one hand, it has to get out of the zero-Covid policy for economic reasons, as the problems are also evident in the collapse of the Chinese stock market.

On the other hand, for political reasons, China must change course while saving face.

How important is the Chinese stock market for Europe?

Germany, in particular, as a major exporter of cars and machines, is heavily dependent on Chinese demand.

If the economy in China is doing badly, that also harms us.

The central bank's stimulus measures so far have not yet borne fruit on the stock market, but now there also appear to be large investments in infrastructure to stimulate the economy.

So China is getting interesting again?

In the short term, the strict lockdowns mean that there is still a risk that supply chains will be disrupted.

In the medium term, there are regulatory dangers because an authoritarian regime prevails in China.

For this reason, further caution is required at first.

The US Federal Reserve will act less strictly in the future

And what to expect from the US markets?

The Fed will continue to raise interest rates, and we expect a 50 basis point plus at each of the next two meetings.

However, we also see that a lot has already been priced into the markets.

Rather, we expect the Fed to act less harshly towards 2023 than the markets have priced in.

We can also see this from the fact that many investors are currently making rather pessimistic assumptions.

Basically, we expect a volatile sideways market in the coming six months.

We then expect moderately rising prices in the next twelve months.

The basis for this assumption is that US inflation is not rising any further and the Fed therefore does not have to step on the brakes more.

So in the US all risks are already priced in, so the stocks are a bargain?

Not necessarily, tech stocks like Google and Apple are currently suffering from rising interest rates and are still fairly highly valued, but they dominate the major indices.

As an investor, you would pay attention to a stronger addition of stocks with intrinsic value, such as banks, telecommunications, insurance companies or pharmaceuticals.

And in Europe?

So far, inflation has been less of a problem here than in the US.

The risks of war are a greater burden.

In the event of a further escalation, we would have to expect further increases in inflation and a recession would also be likely.

A key factor here would be a gas embargo.

And Germany, which is particularly dependent on Russian gas, would then also spill over into Europe.

Expert hesitates with forecast for Dax

How bad could it hit the Dax?

It is difficult to make a prognosis, it depends on many factors, such as how quickly a replacement will be available.

It doesn't look particularly good there, otherwise the government would be open to an embargo.

Is a gas stop already priced into the Dax?

A lot of fear yes, but no gas stop.

There's still room for improvement there.

The 13,000 points would certainly be in danger in this scenario.

The course of the European Central Bank (ECB) is also decisive.

Their course will be based on the inflation forecasts in June.

The first step will be to end the net bond purchases from the APP program in the third quarter – probably as early as July.

Then the way would be clear for the first rate hike.

This also affects the stock market.

The options are July, September and December.

Rate hike: Not a big impact on European equities

What does this mean for European equities?

Basically, we do not expect a major impact because the rate hike is already priced in.

But that depends a bit on the time.

Our forecast is December, if it is already in July it could be a small negative surprise.

Later in the year it shouldn't have much of an effect.

Which markets are more independent of war events?

Japan is probably less affected by the war, is currently valued relatively low and is also less sensitive to interest rates.

We therefore see opportunities in Japanese equities.

Emerging markets are also exciting.

But caution is advised here: China is very heavily weighted in many emerging market indices, including the risks already discussed.

The interview was conducted by Matthias Schneider