Despite pessimism investors hope for upturn

28. Januar 2005 By Elise Kissling

The Dax gave investors a scare early in the week when it dropped below the 4,200 mark in intraday trading. After sharp losses on Friday, the Dax fell back to its pre-Christmas low on Monday, closing at 4,201. Technical analysts say this does not present any accute danger to the Dax's medium-term upward trend but foresee some more blood letting in the immediate future. They are looking for the Dax to fall below 4,191 points, which would trigger another round of consolidation.
By Tuesday, the Dax had bucked the downtrend and bounced back to 4,233 points, mainly on strong labor market data from the United States. But news - also from the other side of the Atlantic - that orders for consumer durables were weaker than expected - put a halt to the Dax' ascent.
Siemens and Postbank bolstered German blue chips. Siemens came out with better-than-expected first-quarter figures and analysts are confident that the company's embattled cell phone division will enter an advantageous cooperation with one of its competitors. Deutsche Post also recorded gains on the positive numbers of its competitor UPS. Altana was up on higher demand for its blockbuster drug Pantoprazol.
On Wednesday, the Dax retreated on mutued company news, landing at 4,212 points. This renewed fall confirmed was traders referred to as the Dax basic tendency to move sideways. Business software heavyweight SAP announced strong 2004 figures but analysts were not happy with its 2005 outlook. And car shares fell on weak sales data from BMW. Wednesday's other big loser was insurer Allianz, which announced plans to shed some of its industrial and financial holdings by placing a mandatory convertible bond. The Dax closed on Thursday at 4,216 points, down from 4,230 the week before.
Deutsche Börse published its latest investor sentiment index on Thursday, which revealed that the ranks of the pessimists had remained unchanged at a very high level. But many investors haven't let go of their hope in a medium-term improvement. They are using the recent price decline as an opportunity to expand their portfolios.
Capital flows were at the center of attention this week after a survey of 65 central banks confirmed fears that the dollar is losing ground as a reserve currency. The central banks that responded to the questionnaire said they had been switching their reserves to euro-denominated assets. Until now, American consumers have not noticed, since the Reserve Bank of China has been jumping in to make up the difference by purchasing dollar-denominated assets. The question is how long China will do this, especially considering the low return. Right now, central banks finance 80 percent of the U.S. current account deficit, i.e. they pay for 80 percent of the net goods Americans buy abroad. China alone finances one-third of this.
Anecdotal evidence suggests that China is eager to spend some of its war chest to snap up European and U.S. industrial plants at bargain prices. Although a good portion of this money would probably end up in eastern Europe, analysts say that small and medium-sized German industrial companies would also be likely targets, since they have the technology China needs, especially in areas such as automotive supply and mechanical engineering. This and the interest of private equity investors in German small- and mid-caps could continue to boost the M-Dax. Last year, the M-Dax markedly outperformed its blue-chip cousin.

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