4 Min Read
FRANKFURT (Reuters) - Investors in Germany's DAX will reap much weaker returns this year than predicted just three months ago as analysts slash forecasts on worries that Europe's debt crisis will crimp profits at some of the world's strongest companies.
The DAX is now expected to end the year at 6,000, up over 7 percent from Wednesday's close of 5,578 points but posting a loss of 13 percent for the year, according to the median of 26 strategists polled by Reuters.
In June, the DAX was still seen ending the year at 7,595 points, but analysts have butchered their estimates as the index has fallen nearly a quarter since the last poll on persistent fears the Greek debt crisis may spread.
"In terms of the economy, this is the worst situation for Germany since World War Two," Equinet analyst Martin Possienke said. He expects the DAX to fall to 5,000 points by end-2011 and to 4,200 by mid-2012, the most downbeat estimates in the poll.
"Time and patience are needed to get out of this dilemma and until then there will be a dry spell which will also leave its mark on equity markets," he added, pointing to three consecutive months of falls in business sentiment.
Private sector business activity in Germany also came close to a halt in September, purchasing managers' data showed last week, underscoring a loss of momentum in Europe's top economy.
The DAX index includes global bellwethers such as engineering conglomerate Siemens, carmakers Volkswagen and BMW, steel group ThyssenKrupp and chemicals maker BASF.
Since most of those companies generate a major share of revenues and profits abroad, the benchmark index -- which is down a fifth year-to-date -- also reflects growth trends abroad and is more than just a proxy for the domestic economy.
The index is also home to big financial stocks -- most notably Germany's top lenders Deutsche Bank and Commerzbank -- which came under particular pressure during the recent sell-off.
By mid-2012, the DAX is expected to reach 6,500 points, compared with June's median estimate of 7,800 points, the poll showed. But some analysts see bigger upside potential following a massive drop in equities in recent months.
"The recent sell off in stock markets around the world, especially in Europe, has been the result of a lack of confidence, not growth," Markus Huber, head of German sales trading at ETX Capital, said.
Huber provided the most optimistic estimates, seeing the DAX at 6,600 points by year-end and 7,500 by mid-2012. But that most optimistic forecast is still some 1,000 points below the consensus from just three months ago.
"China continues to grow strongly, with a soft landing becoming more and more likely and ... earnings of the majority of DAX stocks continue to be solid," Huber added.
However, only investors with huge appetite for risk would find equities a good investment at the moment, said Christian Jasperneite, chief investment officer at MM Warburg.
"If you could trust the current profit forecasts, it'd be a clear 'yes' for buying shares. Unfortunately, one has to expect those will be massively lowered in the next weeks and months."
Additional polling by Ruby Cherian and Shaloo Shrivastava; Editing by Ross Finley and Jon Loades-Carter