We would see the current Dax weakness due to Eurozone debt fears & end of QE2 concerns as a buying opportunity. In our view, the strength of German corporates will be the more important Dax driver than the sovereign weakness. We increase our Dax end 2011 target from ….
Global Markets Research -Fundamental Index Views 17-05-2011
from 7,410 to 8,000.
This is backed by
1) strong economic momentum: Last week the strongest German Q1 GDP growth yoy since unification was announced. Our economists now expect 2011E German GDP growth of 3.2% instead of 2.5%.
2) Strong Q1 reporting: German large caps reported particularly strong 79% of the German market cap has positively surprised on the earnings level. Our earlier worries that higher input costs could lead to margin squeezes have not materialized in the strong Q1 reporting given good pricing power and low capex levels. The positive Q1 reporting continues to trigger a strong positive upgrade momentum among DB analysts in the last week with 12 target price upgrades vs. 1 target price downgrade .
3) Strong earnings momentum: The recent revision ratio for the Dax has a level of +0.24 clearly ahead of the European Stoxx600 at -0.10 .
4) Undemanding valuation: Stable earnings estimates and a stable 12-month forward P/E level of 10.7 for seven months would bring the Dax would already up to 7.900, so our new Dax target requires nearly no multiple expansion.
10 structural arguments in favour of GER support our bullish view on the Dax
Key structural arguments in favor of Germany include
1) a relatively high and stable production share of GDP over the last decade in stark contrast to most other developed countries,
2) a currency which is too weak relative to the strength of the economy,
3) stable unit labour costs over the last decade,
4) strong exports to emerging markets,
5) German companies benefitting from the increased division of labour and the proximity to Eastern Europe,
6) Germany benefitting from a strong German “Mittelstand” and a high number of world market leaders,
7) stable house prices,
8) business confidence is at a 20-year high and consumer confidence is increasing,
9) moderate debt levels of German households and
10)an unemployment rate close to its 18-year low.
Valuation & Risks
We derive our target price for the Dax by using a stable 12M fwd PE of 10.7 and 12M fwd EPS of E748. Key risks include
1) a slow-down in Emerging Markets growth,
2) an earlier than expected restructuring of Greek debt (we do not expect a potential hard haircut before 2013),
3) worsening situation surrounding the market’s perception of US national debt and the potential necessity to raise the debt-ceiling deadline scheduled for 02 August 2011 and 4) a strengthening in the EUR/USD rate above a level of 1.50.
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ETF Obbligazionario – EuroMts Inflation Linked (Lyxor)
COMMENTO: l’Etf dei titoli di stato europei legato all’inflazione ad aprile riesce a superare la forte resistenza statica a 109,50-110,00, avviando un consistente movimento rialzista verso 120,00 (max. 117.87), per poi rettificare nelle ultime sedute. Per le prossime settimane sono possibili movimenti di riaccumulazione fra 115,00/20 e 117,00/50, prima di tentare nuovi spunti rialzisti verso 120,00. Il quadro tecnico per i prossimi mesi si indebolirebbe sotto 115,00/20, determinando la continuazione della discesa verso 111,50-112,50, dove sono attesi nuovi acquisti.