A market phase characterized by great uncertainty.
(Photo: dpa)
Dusseldorf The German share index Dax gained 2.6 percent last week. The fact that hardly anyone seems to take notice of this shows how bad the mood on the stock exchanges is. This is also confirmed by the Handelsblatt survey Dax-Sentiment among 6000 private investors. The mood here has been negative for 18 weeks now. This is the longest negative streak since the survey began in 2014.
In the past week alone, panic broke out twice on the markets: On Monday, the Dax slipped by around 300 points from its daily high and closed 2.1 percent lower at its daily low. On Thursday, the leading index fell by 2.5 percent to its daily low.
On Tuesday and Wednesday as well as on Friday, the Dax recovered with an upward movement of 3.3 and 2.1 percent. “But the recovery is not yet reaching investors, as the preliminary results of our survey show,” says sentiment expert Stephan Heibel, who evaluates the survey for the Handelsblatt.
The sentiment, which reflects the general mood among those surveyed, is slightly above the minus 5.8 from the previous week at minus 4.8, but is still extremely negative. “Investors are depressed and resigned,” explains Heibel.
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Uncertainty also remains high with a value of minus 5.8 (previous week minus 8.1). Because the markets are developing differently than expected by investors. For almost every sixth respondent, the expectations were not or only barely met in the past week. The losses must have been correspondingly large.
As painful as it is for those affected, this development is a glimmer of hope for the entire market, explains Heibel: “Fear and panic are signs that the last people willing to sell have now sold their shares.” The managing director of the analysis company AnimusX not only refers to the historically longest negative phase in sentiment. Other indicators also reflect the extremely bad mood on the market.
Fund managers in the USA have reduced their investment quota to 24 percent, so they have almost completely withdrawn from the market and are instead holding cash, reports Heibel: “I only remember the 2020 corona crash, the 2011 euro crisis and the 2008 financial crisis where the investment ratio was even lower.” In addition, less than a quarter of US investors are currently optimistic (bullish). That’s the lowest “bull rate” in 40 years.
Many investors have already sold
The figures show that many market participants have either already completely withdrawn or sold most of their portfolios. There are currently hardly any sellers on the market who can push the prices down much further. “That and many other indicators suggest that we have found a bottom, at least for the time being,” says Heibel. The Dax’s low for the year is 12,439 points, the most recent low was 13,381 points.
“In the past, extremely negative mood values, such as we are seeing this week, led to an average price gain in the Dax of ten percent over the next six months,” says Heibel. If no negative event occurs in the coming days that goes beyond the events of the past few months, he therefore expects prices to rise. “Negative events can nullify the statement of the sentiment survey,” warns the expert.
Protected against another price slide
However, investors have secured themselves against further price losses, as the Euwax sentiment on the Stuttgart Stock Exchange shows. Although this has risen from minus six to minus three, it still shows an excess of put versus call products on the Dax in the depots. Put options on the Dax increase in value when the index falls, so they serve to hedge against price losses.
In the case of institutional investors who hedge themselves via the Frankfurt futures exchange Eurex, hedging through puts has even increased significantly. The same applies to US investors who trade on the Chicago Futures Exchange.
“The high level of put protection by institutional investors in Germany and investors in the USA has bottomed out below the current price level,” says Heibel. “Should prices fall lower, put protections will be unwound, creating demand that prevents further slides.”
Expectations for the future are brightening
Put options work in much the same way as short selling. Put simply, this means that if an investor buys a put product on the Dax, the bank has to sell the Dax in the background. And when the derivative is sold, the Dax must be bought back again. This increases demand and stabilizes prices.
What also gives hope: Among the survey participants, the expectation of the stock market development in the next three months has turned slightly positive and increased from minus 0.6 to plus 0.1.
Currently, more than half of those surveyed see the Dax in a downward movement. In the previous week, however, there were significantly more. On the other hand, the proportion of those who account for a bottoming out has increased.
One difference between the current situation and the corona crash is the uncertain mix of the war in Ukraine, rising interest rates and economic concerns in China. This also explains the development of willingness to invest, which is moderate with a value of 1.7 (previous week 2.0). Only every fourth private investor surveyed wants to trade in the next two weeks. Most are still undecided.
For comparison: During the Corona crash, the willingness to invest had reached five and more around the low. The buying interest for a sustainable recovery does not seem to be there yet.
There are two assumptions behind surveys such as the Dax sentiment with more than 6500 participants: If many investors are optimistic, they have already invested. Then only a few are left who could still buy and thus drive prices up. Conversely, if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress the courses.
Do you want to take part in the survey? Then let yourself be automatically informed about the start of the sentiment survey and register for the Dax sentiment newsletter. The survey starts every Friday morning and ends on Sunday afternoon.
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