Why share prices will continue to rise

In January, the Dax marked an all-time high, and prices fell in the wake of the corona virus. Experts have now given the all-clear. The recovery of the past few days proves them right.

With a protective mask: A stock trader is on the phone in Seoul.

Et would have been too good if the stock market rally from last year at the beginning of 2020 had just continued like this. But after the outstanding stock market year 2019, the global stock markets took a break after January 22nd. Investors on the stock exchanges quickly and naturally found the reason for this in concerns about the corona virus. At least for many short- and medium-term market participants, it was an important reason to sell shares.

An investor with a long-term horizon when investing in stocks is unlikely to have sold large positions in the past few days and weeks. After two somewhat restless weeks, level-headed investors are apparently also being rewarded for not going out of the market. Because the Dax is surprisingly robust – and that in this rather negative news mix about the corona virus. The fact is: So much has not happened on the stock exchanges so far. A major correction, which some market participants might wish for after the price increase in 2019, has not yet materialized. The Dax’s losses of 2.02 percent in January can more likely be seen as completely conventional profit-taking.

If you look at the past trading days, you might think that a lot on the stock market in relation to the effects of the coronavirus has already been priced into the prices. If this is not the case, market experts nevertheless advise prudence: “Even if the markets in Europe are more sensitive than in the United States to the coronavirus and its consequences for the global economy, there is currently no reason to panic,” writes Michael Winkler , Head of Investment Strategy at St. Galler Kantonalbank Germany. “The markets do not panic either, but from their point of view they behave rationally and logically. They reflect developments due to rising volatility indices, rising credit spreads, a higher gold price and a stronger Swiss franc on the one hand and falling interest rates on the other, ”he continues to analyze.

Falling prices also offer opportunities

Winkler’s advice is therefore very simple: “Investors should first carefully observe the further development and wait. Due to falling share prices, there may even be opportunities to enter the already quite expensive markets. “

For small investors, the stock market remains one of the best ways to make good long-term returns – with and without the coronavirus. The majority of equity strategists these days never tire of analyzing the economic effects of the coronavirus on China and the global economy. In the end, a lot still depends on how and whether China can solve the problem.


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To the detailed view

The government in Beijing knows very well what is at stake: 18 years ago the SARS virus did not make the country as large as it does today in global gross domestic product. An economic downturn in China is likely to have a more negative impact in other countries.

In a recent study, however, the Helaba analysts note that the question of whether the coronavirus and its consequences could bring about a recession in China is, from their point of view, only useful to a limited extent: “Obviously, an epidemic is not a ‘cyclical’ event in the Sense of business cycle analysis. In addition, many observers associate the term recession with a contraction, i.e. a shrinking gross domestic product. “

However, given the very high growth trend in China, this is extremely unlikely. In this context, you point out that the Chinese economy had already shown relatively little dynamism in the past year. At the end of the Helaba analysis it can be read accordingly that the susceptibility of the Chinese economy to negative shocks should therefore not be overestimated. The Helaba experts therefore assume that the Chinese economy will not be “thrown off track” by the coronavirus.

Investors should stay calm

Frank Häusler, chief strategist at Vontobel Asset Management, also gives the all-clear: “We advise investors who invest in emerging markets to stay calm, as economic conditions should normalize again in the long term.” He goes one step further: “The pent-up demand of Economy usually leads to an acceleration of growth in the following quarters, which means that we should see a return to the trend growth rate about three quarters after the infection peak. “

Our author Christoph Scherbaum is a stock exchange specialist and works as a financial journalist from Ludwigsburg.
Our author Christoph Scherbaum is a stock exchange specialist and works as a financial journalist from Ludwigsburg.: Image: Archive

If you look at the Dax as a home-focused investor, a certain serenity is not wrong. After the price increase of 25 percent in 2019, which means the most successful DAX year since 2013, it rose to a new all-time high of 13,640 points by January 22, 2020. This was followed by a quick and clear setback to just below the 13,000 mark and then a new catch-up movement began.

The Dax is currently trading at a distance of 8 percent above the 200-day line, which means that the long-term upward trend in the index has recently gained strength again. In terms of the chart, it will be exciting, because a further increase of just under 1 percent is enough to break out of the previous all-time high and thus generate a new buy signal – and all of this at the time of a coronavirus.

Investors should continue to pursue an investment strategy that ensures consistent diversification between and within asset classes, countries and sectors in the portfolio. And they should heed a wisdom from star investor Warren Buffet: “It is a mistake to pay attention to the daily fluctuations of a stock. They make no difference. “