While the German Dax Index had a rather good rally in the past six months, worries are mounting.
This morning, BASF, a leading German chemicals company, issued an unexpected profit warning. Its shares slumped 6 per cent at the time of writing (see chart below). Another German firm, Deutsche Bank, dived 5% despite executing a large-scale restructuring program. Thyssenkrupp, the German steel manufacturer, is also underperforming.
In fact, some funds are expecting more underwhelming German corporate results because of the nation’s weakening export trends. The $39 billion hedge fund Marshall Wace, for example, is reported to be holding large short bets on many German conglomerates such as Thyssenkrupp and BASF.*
When large funds are shorting, it is likely that they are sensing further downside potential. Technically, Bayer,Daimler, BMW, Lufthansa, Infineon, and Continental – in addition to above-mentioned stocks – are all trading near their one-year lows. Many are beneath their long-term moving averages. This indicates weak trends. Today’s BASF warnings may accentuate these downtrends.
However, not all German stocks are doing poorly. SAP, for instance, is maintaining the long-term uptrend.
All in all, given that many large-cap stocks are performing poorly, I expect the Dax Index to struggle in the second half of the year, especially in view of the ongoing trade war, weakening export markets, and Brexit. Resistance levels noted at 12,500 and 13,000.
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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.