DAX-Sentiment: Pessimists return to form

15 February 2012. FRANKFURT (Börse Frankfurt). It is not certain that the situation in Greece can be described as sufficiently diffused for European policymakers to be thinking about summer vacations, but at least one EU parliamentarian has given it some thought. Alexander Graf Lambsdorff, a Euro-MP from Germany’s Free Democratic Party, encouraged his countrymen to make Greece their next holiday destination because the beleaguered nation needs economic growth. The appeal of Mediterranean sun, sea and sand on a Greek island is irrefutable. However, notwithstanding the willingness of any holidaymaker to travel to Greece given the frightful images the popular media thrills in broadcasting, and the welcome a German tourist might receive there, one has to wonder how much the export of a few package holidays is going to do to address a slump in output that reached seven percent in 2011. If anything, the suggestion left the impression that policymakers had run out of ideas for tackling the Greek debt crisis. This must be the reason, thought investors, why a deal in the bailout negotiations has for weeks been ‘just hours away’.

The prospect of a Greek default has been poison to the sentiment of German domestic institutional equity investors. Since the rating agency S&P downgraded nine eurozone sovereigns in mid-January, they have been tenacious in their bearish beliefs even though the DAX has risen steadily over that time. Although in last week’s poll it appeared as if the more than 12 percent trough-to-peak equity rally had started to bite – perhaps the implications of the Greek debacle are not so crucial to the performance of German blue-chips after all – but this week the bears are back again. Boerse Frankfurt’s weekly poll revealed an eight percentage point decline in the proportion of optimists. Most of them fled directly into the bearish camp. This means that sentiment, as measured by our Bull/Bear-Index, has fallen back into pessimistic territory.