Obtaining 20,000 points and its implications for investment enthusiasts
The DAX is breaking record after record, and it might hit 20,000 points soon, according to Fondsmanager David Wehner from asset manager FGTC Investment. He discusses this with ntv.de, explaining reasons, potential profits, and future market trends.
ntv.de: Analysts believe the DAX will reach 20,000 points or more soon - what's your take on it?
David Wehner: The stock markets have been boosted by strong optimism this year. Despite geopolitical risks, economic uncertainties, or even the Japan crash in August, these events have been quickly addressed. Investors believe that central banks are not expecting a recession, but are responding to inflation with interest rate cuts. Therefore, reaching 20,000 points is indeed possible. It depends on the corporate figures for the last quarter. If the US heavyweights in the S&P 500 have a positive outlook, the DAX is likely to follow suit.
When do you expect the 20,000 points to be reached?
It could happen in the upcoming trading days, provided the positive sentiment at the stock exchange continues. However, profit-taking is also expected. The stock markets might see some corrections around the US election at the beginning of November. Prices will likely fluctuate due to the economic risks brought by the election outcome.
Which sectors are currently performing well in Germany?
The automotive industry and chemical sector are currently struggling. On the other hand, sectors like Rheinmetall, driven by the European armaments initiative, are thriving. The most valuable company in Europe is still SAP, while we're seeing a revival in the consumer sector, such as Adidas. Companies in these sectors have made significant improvements in recent years.
Will the winners continue to soar, or has the peak been reached?
The main winners will likely continue benefiting. SAP has made a comeback with its product range and focus on Artificial Intelligence. The armaments industry remains an important strategic factor, and Europe has a significant catch-up need in this area. Geopolitical crises will persist, after all.
What does this mean for investors - is it a good time to buy stocks, or should they wait?
We're at the end of the year, and the annual hope for the year-end rally often comes true. Investors who have been investing all year long and have embraced optimism might not need to increase their equity share. It might even be wise to realize profits at levels like 20,000 before the US election. So, if your equity share is at 100 percent, consider reducing it to 80 percent and observe the US election's outcome. There's potential for volatility there. Afterwards, deeper notations that could generate a more attractive return could be repurchased. These investors should wait for the possible year-end rally until November - there's no need to worry about missing out on returns, but keep a clear head. Realized profits cannot be taken away. In August and September, we saw how quickly markets can correct, with major indices falling by 5 to 10 percent within a few trading days. Those who create room now can use such movements to their advantage.
Your firm manages assets worth over a billion euros for wealthy individuals, medium-sized entrepreneurial families, foundations, and state-owned companies - how much of that is invested in stocks?
We've slightly adjusted our equity quotas to be more defensive. Clients who had an equity quota of 100 percent are now at 80 to 85 percent. In the last quarter, we've strengthened our positions in bonds and gold.
Germany's economy is slowing down, yet the DAX is setting record highs - how does this fit together?
The DAX no longer directly reflects the German economy. Globally, financial markets have decoupled from the global economy. Until the early 2000s, global market capitalization and GDP were correlated, and stock markets reflected economic output. However, this changed with the flood of money during the financial crisis. Now, stock markets represent around 200 percent of global GDP, completely decoupled. If the DAX mirrored the German economy, we'd be at levels before the Corona pandemic, which is not the case now.
What drives stock prices instead?
The DAX is heavily export-oriented, as the listed companies are globally active. In comparison, the S- and MDAX, which are more focused on the German economy, have lagged behind the DAX. The DAX is primarily driven by the economies of China and the USA. When the Chinese leadership presented their economic stimulus last week, German stocks also saw benefits. If China successfully returns to its growth path, German companies will also benefit. The USA is the world's growth engine this year, and Germany's largest sales market, Europe, is also showing signs of improvement compared to domestic growth.
However, China is in a trade conflict with the USA and Europe - auto tariffs are a keyword. Could this halt the DAX's record-breaking streak?
The grim news for the automobile sector has already been accounted for, with prices adjusting in the recent months. The outcome of the U.S. elections holds significant weight in resolving the trade dispute with America. If Trump triumphs and implements his protectionist plans, such as tariffs, he would need a majority in both the House of Representatives and the Senate. In such a scenario, Germany, as a major exporting nation, would find itself in a tough position, particularly the automobile sector, sandwiched between China and the U.S.A. However, this is a pessimistic forecast. Even in his initial tenure, Trump failed to enact all his promised policies.
Who are investors betting on now, Harris or Trump?
At present, there's more investment in Trump, as he's gaining ground in the swing states. The escalating gold price also suggests a bet on Trump, as it continues to hit record highs, despite the surging dollar value and rising bond yields - factors that often negatively impact gold's performance. Nevertheless, the market anticipates the U.S.A.'s debt-to-GDP ratio to escalate following the November elections - not coincidentally, as the Republicans are renowned for pro-business policies that require refinancing. The gold price tends to rise alongside the global debt-to-GDP ratio, meaning an increase in global debt can trigger an increase in the gold price. Furthermore, the oil and gas industry, which thrived during Trump's preceding term, has recently witnessed a remarkable surge. But remember, elections can be highly volatile.
Christina Lohner spoke with David Wehner (Paraphrased)
Given the current market trends, what are your thoughts on individuals engaging in trading in shares?
Investors, especially those with a long-term perspective, could potentially benefit from trading in shares, especially in companies like SAP or those in the consumer sector, given their positive outlook. However, they should also brace for volatility, such as around the US election, and consider taking profits at high levels to minimize risks.
Considering the future market trends you mentioned, would you recommend trading in shares for both short-term and long-term investors?
Trading in shares, especially in well-performing companies, could be beneficial for both short-term and long-term investors, given the potential for profits and the resilience of the stock market, even in times of economic uncertainty. However, they should also consider the risks and potential volatility, such as around the US election, and potentially diversify their portfolios to manage these risks.
