Dax firms are still cheap, says top Barings equity manager
As the Dax ticks pasts its yearly high, Barings' Eurostars AAA-rated Smith sees further upward price potential for German companies.
by Emily Blewett on Dec 04, 2012 at 15:05
German firms still look cheap despite the Dax index continuing its rise past its highest value mark of 2012, according to Barings’ equity manager Robert Smith.
The Dax index, currently hovering above the 7400 mark, has steadily risen in the second half of this year towards its 2011 highs. Its outperformance compared to other equity markets has caused some sceptics to say a bear market will follow.
Yet Smith, a Euro Stars AAA-rated manager, forecasts earnings growth to increase in the future as companies remain with clear outperforming fundamentals, boosting the likelihood for superior earnings in the future.
‘This upwards trend is based on the competitiveness, quality and desirability of what it exports,' said Smith, who manages the Baring German Growth Trust fund, a Ucits product registered in a number of European and emerging market countries.
The fund’s main holdings are concentrated in some of the largest Dax companies by market cap and include pharma giant Bayer, car manufacturer Volkswagen, conglomerate Siemens, financial firm Allianz and software manufacturer SAP.
'We like the increasing trend of German suppliers in the automotive industry developing their products within an emerging markets context, especially China, as it makes the production process more cost-efficient with the help of new robot technology made in Germany,' said Smith.
German companies across all sectors have been considered to benefit from a safe haven status shielding them from the onslaught of volatility in European equity markets due to the euro crisis.
The Dax 30 TR index returned 1.5% in the last eighteen months, outperforming the MSCI ex-UK TR index that dropped 0.9% in the same period.
Companies such as Siemens and Volkswagen have already taken advantage of their popularity, financing themselves through debt rather than equity this year.
While Siemens issued bonds with record low yields for a European company, both companies issued bonds with yields below the asking for some euro area government debt.
In the past three years, the Baring German Growth Trust returned just under 40%. The fund’s benchmark index, the Dax 30 TR, rose 31.6% in the same period.
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