The DAX index is set to pare gains made yesterday as investors reacted to the latest statements by German economic minister, Peter Altmaier.
In a statement, he warned foreign investors and big hedge funds against rushing to take over the country’s top companies now that their valuations have plummeted. He said that the government was prepared to stand for its companies and to prevent takeover by foreigners. He said:
I say to all those people in hedge funds and elsewhere who are looking forward to acquiring one or the other on the cheap — make no mistake, we are determined to stand by our companies.
In the past few months, some of the blue-chip German companies have become incredibly cheap. The DAX Index, which is similar to the Dow Jones, has declined by more than 25%. Share prices of top companies like Lufthansa, Volkswagen, Continental, and MTA have dropped by more than 40%. This drop has made these companies incredibly cheap. For example, BMW has a trailing price-to-earnings ratio of just 5 while Volkswagen has a ratio of 3.
Germany is not the only country moving to protect its companies. The European Union in general has taken a nationalistic tone in bid to prevent US investors from moving in. In a statement, Ursula Von Leyen, the president of the European Commission asked countries to be protective of their companies.
In recent years, some of Germany’s biggest companies like Deutsche Bank, Thyssenkrupp and Bayer have been under intense pressure from US hedge funds to change. This has led to the breakup of some companies and increased dividends and share repurchases.
On the daily chart, we see that the DAX index has been attempting to rebound from a multi-year low of €8,250. Using data in the futures market, I expect the index to open at about €9,592, which is in par with Tuesday’s close. Still, with optimism of a big stimulus package, I expect the index to bounce back and test the 61.8% Fibonacci Retracement level at the €10,400 level. This price is also where the index closed on March, 10 and 11.