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It’s back on in Germany as DAX traders send $570 million to ETF

German stocks, rejected by investors in April, are luring them back in May.

German stocks, rejected by investors in April, are luring it well in May.

Buyers added probably the most in a year – a lot more than 570 million euros (US$638 million)- towards the biggest exchange-traded fund tracking the equities last week. The benchmark DAX Index had its biggest jump in two months on Friday, and options data show traders are betting on further gains. The most-owned contract is calling for a 2.5 percent advance by June.

After the DAX\’s biggest monthly loss since July, valuations have sunk to their lowest level this season relative to Europe\’s equities. The decline is a good opportunity to invest in German companies, based on Didier Duret of ABN Amro Bank NV\’s wealth-management unit. Economists have increased the nation\’s growth forecast each month this year, raising the appeal of its shares.

\”Valuations were discounted through the correction, so it is a good thing,\” said Duret, who oversees the same as $177 million in Amsterdam. \”Germany continues to be engine of growth in Europe. Should you act on fundamentals, you should purchase.\”

A 26 per cent rally this year sent the DAX to some record and pushed its valuation to some five-year high in April. That month, a surging euro triggered concerns exporters would be hit, causing an 8.5 per cent drop in the index through May 5. The index\’s multiple fell to 14.9 times estimated earnings Friday, about 6 percent lower than that of the Euro Stoxx 50 Index.

ETF Inflows

After withdrawing money from the iShares Core DAX UCITS ETF for four straight weeks, investors have reversed course.

The DAX has rebounded 3.4 per cent from a two-month low, and investor bets signal the rally isn\’t over. The cost of options hedging against further declines has slumped 37 percent from an almost three-year high on April 28, in accordance with bullish contracts.

The market\’s appeal is Germany\’s growing economy, forecast to outpace the euro area and expand 1.8 per cent this year. German business confidence reached a 10-month high in April, and also the government expects domestic demand will climb at a faster pace than this past year.

UBS Group AG is bullish on German stocks too, partly due to the country\’s economy and partly because it\’s a safe haven amid the Greek turmoil. The bank recommends purchasing financial companies or utilities, which were among the worst performers in April. Deutsche Bank AG and Munich Re climbed a week ago after slumping a lot more than 11 per cent in April, while RWE AG rebounded 4.5 per cent from its worst monthly lack of the year.

\”Investors are very well advised to refocus around the more domestic aspects of the German economy,\” Martin Lueck, an economist at UBS, and Karen Olney, a strategist, wrote in a note dated May 8. \”Germany acts as the best euro-area safe place while Greece sorts itself out.\”

Bloomberg.com