German Stock Market Pain Seen Just Beginning Should Greece Exit
2015-06-15 07:10:28.30 GMT
(For an Options column news alert: SALT OMA.)
By Inyoung Hwang
(Bloomberg) -- The tumble in German stocks has already
breached a level that constitutes a correction and could go
another 10 percent should Greece exit the euro.
So say Ralf Zimmermann of Bankhaus Lampe KG and UniCredit
Bank AG’s Christian Stocker, who forecast the DAX Index could
slip as low as 10,000. Even in a more likely scenario where
Greece and its creditors compromise, the decline probably isn’t
over and the benchmark gauge may hit 10,500, Zimmermann said.
A rebound in the euro coupled with losses in German bunds
has made the DAX the second worst-performing index among
developed markets this quarter. Now Greek debt negotiations are
stalling, and European officials are preparing for a potential
default and exit from the euro.
“The deadline is approaching, and it’s crunch time,” said
Zimmermann, an equity strategist at Bankhaus Lampe in
Dusseldorf. “The move from mid-April was driven by the crash in
the German bond market. If there is a Grexit, that would be an
add-on.”
German equities have more at stake after the nation’s index
more than tripled from a low in 2009 through a record in April,
while the Euro Stoxx 50 Index just doubled. A level of 10,000
would mark a 19 percent drop from the DAX peak. The gauge lost
1.5 percent at 9:09 a.m. in Frankfurt.
Growing Despair
Greece needs to come up with a set of financial reforms
that its creditors will deem satisfactory to unlock further
bailout aid, with its current rescue package expiring at the end
of the month. The nation already missed an International
Monetary Fund payment this month, and the lender’s delegation
voiced despair of Prime Minister Alexis Tsipras’s negotiation
tactics.
While UniCredit Bank’s Stocker sees the DAX at risk, he
also says potential declines would be temporary. With the
European economy gaining strength, 10,000 would be a buying
opportunity. Such a level would send the DAX valuation to 12.6
times projected earnings for this year -- the lowest since
January, data compiled by Bloomberg show.
“A Grexit would only pause the overall positive equity-
market development during the summer months,” Stocker said.
“The spillover effects of a possible Grexit are much less
compared to two to three years ago.”
Even as a gauge tracking volatility expectations on the DAX
has climbed 50 percent from a low in February, it’s near a two-
month low relative to a measure of Euro Stoxx 50 swings.
Still, even a compromise that entails ongoing formal euro
membership for Greece may create enough jitters to hurt German
shares, according to Zimmermann.
“Investors have thought there would finally be a
solution,” he said. “But you could argue with capital controls
and a parallel currency, that this would be the early sign for a
Grexit in the longer run. And of course, many have believed
promises by politicians and the European Central Bank that such
a thing would never happen. There is still downside risk for
markets.”
For Related News and Information:
Bunds Turn Germany From Hero to Zero as DAX Enters Correction
European Selloff Means Stocks Look Alike as Correlation Surges
Top Stories on Stocks: TOP STK <GO>
Feature Stories on Stocks: TNI STK GREET <GO>
DAX Volatility Versus Euro Stoxx 50: V1X INDEX V2X INDEX <GO>
To contact the reporter on this story:
Inyoung Hwang in London at +44-20-3525-2394 or
ihwang7@bloomberg.net
To contact the editors responsible for this story:
Cecile Vannucci at +44-20-3525-7032 or
cvannucci1@bloomberg.net
Trista Kelley
2015-06-15 07:10:28.30 GMT
(For an Options column news alert: SALT OMA.)
By Inyoung Hwang
(Bloomberg) -- The tumble in German stocks has already
breached a level that constitutes a correction and could go
another 10 percent should Greece exit the euro.
So say Ralf Zimmermann of Bankhaus Lampe KG and UniCredit
Bank AG’s Christian Stocker, who forecast the DAX Index could
slip as low as 10,000. Even in a more likely scenario where
Greece and its creditors compromise, the decline probably isn’t
over and the benchmark gauge may hit 10,500, Zimmermann said.
A rebound in the euro coupled with losses in German bunds
has made the DAX the second worst-performing index among
developed markets this quarter. Now Greek debt negotiations are
stalling, and European officials are preparing for a potential
default and exit from the euro.
“The deadline is approaching, and it’s crunch time,” said
Zimmermann, an equity strategist at Bankhaus Lampe in
Dusseldorf. “The move from mid-April was driven by the crash in
the German bond market. If there is a Grexit, that would be an
add-on.”
German equities have more at stake after the nation’s index
more than tripled from a low in 2009 through a record in April,
while the Euro Stoxx 50 Index just doubled. A level of 10,000
would mark a 19 percent drop from the DAX peak. The gauge lost
1.5 percent at 9:09 a.m. in Frankfurt.
Growing Despair
Greece needs to come up with a set of financial reforms
that its creditors will deem satisfactory to unlock further
bailout aid, with its current rescue package expiring at the end
of the month. The nation already missed an International
Monetary Fund payment this month, and the lender’s delegation
voiced despair of Prime Minister Alexis Tsipras’s negotiation
tactics.
While UniCredit Bank’s Stocker sees the DAX at risk, he
also says potential declines would be temporary. With the
European economy gaining strength, 10,000 would be a buying
opportunity. Such a level would send the DAX valuation to 12.6
times projected earnings for this year -- the lowest since
January, data compiled by Bloomberg show.
“A Grexit would only pause the overall positive equity-
market development during the summer months,” Stocker said.
“The spillover effects of a possible Grexit are much less
compared to two to three years ago.”
Even as a gauge tracking volatility expectations on the DAX
has climbed 50 percent from a low in February, it’s near a two-
month low relative to a measure of Euro Stoxx 50 swings.
Still, even a compromise that entails ongoing formal euro
membership for Greece may create enough jitters to hurt German
shares, according to Zimmermann.
“Investors have thought there would finally be a
solution,” he said. “But you could argue with capital controls
and a parallel currency, that this would be the early sign for a
Grexit in the longer run. And of course, many have believed
promises by politicians and the European Central Bank that such
a thing would never happen. There is still downside risk for
markets.”
For Related News and Information:
Bunds Turn Germany From Hero to Zero as DAX Enters Correction
European Selloff Means Stocks Look Alike as Correlation Surges
Top Stories on Stocks: TOP STK <GO>
Feature Stories on Stocks: TNI STK GREET <GO>
DAX Volatility Versus Euro Stoxx 50: V1X INDEX V2X INDEX <GO>
To contact the reporter on this story:
Inyoung Hwang in London at +44-20-3525-2394 or
ihwang7@bloomberg.net
To contact the editors responsible for this story:
Cecile Vannucci at +44-20-3525-7032 or
cvannucci1@bloomberg.net
Trista Kelley