DAX is cheap post consolidation; profit potential is very positive

If the US economy survives until late summer 2019 without falling into recession (which we expect to be the case), it will find itself in the longest economic upturn since the 1850s (source: NBER). The upside trend on the equity market can therefore undoubtedly be described as mature. The prospective yields on the US equity market are among the lowest in its history.

Nonetheless, it is necessary for investors to generate good returns in the low-interest period, so that the risk-tolerant behaviour is likely to last some time yet. In our view, a marked correction phase on the equity market is unlikely, as corporate profit is rising sharply and the classic catalysts for a turnaround on the stock market (a sharp rise in interest rates, oil price shock, recession) do not look overly threatening at the moment.

The German equity market has moved into choppy waters in the course of the latest consolidation on the US equity market, with the DAX down a good 800 points from its all-time high. At the same time, the analysts here have raised their earnings forecasts for the DAX companies in 2018/19, with the US tax reform and significant recovery of the global economy making it necessary to adopt a more optimistic pace. Based on the latest consensus estimates for 2018 and 2019, the DAX is currently trading at a PER of 13.1 or 12.1 respectively. Historically, a PER of 12.1, which equates to an earnings yield of 8.3% (reciprocal of the PER), represents an attractive level for entering the market.

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