Stock markets face the week of truth

The fear barometer of the German stock exchange, the VDAX, reached with 75 points a higher level than at the time of the dotcom crash and the financial crisis 2008. At the same time the gold price also fell by five percent. And even the government bonds, which are considered to be safe, recorded price losses on Friday. It was the complete surrender of the investors.

LBBW’s equity strategists comment on the black stock market week: “The corona pandemic is lacking in the markets. Market participants’ concerns about major economic upheavals are driving investors these days and causing them to pull out. ”

It never went down faster

On top of that, the German stock market has never gone down so quickly: it was only on February 19 that the Dax reached its record high of 13,789 points. This left him with just three weeks for his previous crash. For comparison: After the collapse of the Neuer Markt at the beginning of the millennium, followed by the attacks on September 11, 2001, the Dax lost a total of a good 70 percent in value – but took quite exactly three years.

And the 2008 financial crisis still had one and a quarter years between the high in December 2007 and the low in March 2009. However, experts doubt that the low point has already been reached: the hysteria among the population will continue to increase, said Mark Dowding, chief investor at the fund company BlueBay. “As the financial markets are always trying to estimate and adjust to future developments, we believe that the peak of the current sell-off could be reached in the next few weeks.”

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Christian Kahler, chief strategist at DZ Bank, says that in the past, share prices in a recession mostly fell below the company’s book value. The book value of the Dax is currently around 8100 points. “It is therefore quite conceivable that the stock markets will continue to reset in the coming weeks and only find their low in the area, converted to the DAX, between 8000 and 9000 points in April or May.”

After the sell-off, shares are now significantly cheaper in terms of profit expectations: Helaba experts have now calculated a price-earnings ratio of 10.2 for the Dax, which is significantly less than the long-term average. “At the current level, German standard values ​​are currently clearly undervalued, even if it has to be taken into account that the estimates for corporate profits for the coming twelve months are currently probably set too high,” wrote Helaba expert Markus Reinwand. This certainly offers opportunities: “The combination of low valuation and pronounced fear has mostly proven to be a good starting point in the past.”

Weak economic data expected

However, positive recovery of the corona virus is a prerequisite for a real recovery, says Robert Greil, chief strategist at Merck Finck, whether it be a decline in the number of infections, effective medication or vaccinations. “This requires more than government measures or central bank measures. Instead, investors have to see light at the end of the virus tunnel. ”As soon as realistic glimmers of hope are in sight, things can go up very quickly.

A first impulse could come from the Fed meeting next Wednesday. After its surprising rate hike last week, the Fed could add more funds. The central banks of Japan and Switzerland are also in focus on Thursday. They could also cut interest rates further in the fight against market panic.

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Bad news is likely to come from the business cycle. Commerzbank chief economist Jörg Krämer writes: “The spread of the corona virus has obviously shattered the previously held hopes of a recovery in the German economy on the markets.” follows the crash of the stock markets. Coba expects the economic barometer to drop from +8.7 to -35. “This would be the sharpest decline since the ZEW began calculating in early 1991,” said Krämer. In addition, investors should also watch Wednesday for industrial production and retail data from the United States.

That is why LBBW’s equity market strategists also advise: Against this background, the high fluctuations in the markets are likely to continue for the time being. Tactically-oriented investors should therefore wait and see and take a defensive approach. “Long-term-oriented investors could, however, look forward to buying prices and can buy quality stocks at low prices.

More: Asset managers see no end to the sell-off wave.

With material from Reuters.

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