LONDON (Reuters) - Deutsche Bank on Monday downgraded German equities to “underweight” from “overweight”, following a strong rally that has taken the country’s benchmark to a series of record highs.
Germany's DAX .GDAXI index has gained nearly 14 percent so far this year, compared with a 6.6 percent rise for the pan-European STOXX 600 index. Aside from Italy .FTMIB, it is the strongest-performing major equity market year-to-date.
The note from Deutsche Bank’s European equity strategy team said it expected the German index to underperform, given that the bank’s currency strategists expected the euro trade-weighted index EUREER=ECBF to rise over the next six months.
This, coupled with Deutsche Bank’s view that cyclicals will underperform defensives, implies more than a 5 percent underperformance for German equities “over the coming months”, according to Deutsche.
“Unlike three months ago, the (German) index looks slightly expensive on our country valuation scorecard,” Deutsche Bank’s European strategy team added.
However, the investment bank raised its view on Switzerland from "benchmark" to "overweight", citing the Swiss market's .SSMI underperformance relative to Europe since mid-August.
Deutsche Bank said its "subdued outlook" for the Swiss franc CHF= - which has fallen 2.3 percent this year - should support the country's relative performance via earnings upgrades.
Reporting by Kit Rees