Top German Stock Picker Sees 30% DAX Gain as U.S. Bears Flee

(Bloomberg) -- One of Germany's top stock pickers says U.S. investors should pay more attention.

MainFirst Bank AG's Olgerd Eichler, whose $507 million fund has beaten most rivals in 2017, says international money managers still lack enough confidence in the euro area's largest economy to load up on its shares. The biggest U.S. exchange-traded fund tracking Germany continues to bleed cash, even as the benchmark DAX Index this week climbed to its 15th new peak in six months.

With profits and dividends set to swell at DAX's exporters just as global growth picks up, Eichler predicts another 20 to 30 percent gain in the benchmark within two years. Recent gains notwithstanding, the German gauge remains close to its deepest discount relative to the S&P 500 Index, attracting bullish calls from strategists at Credit Suisse Group AG and Societe Generale SA.

“The thing about Germany is that it's a very cyclical market, and that can make it volatile,” Eichler said from Frankfurt. “For international investors, it's the easiest way to step into Europe. They'll find familiar names, a very stable economic and political system, and a lot of companies which are still cheap.”

Utilities RWE AG and EON SE, already up more than 40 percent this year amid surging power prices, will climb “much higher” as they return more money to shareholders, Eichler predicts. His other favorites include carmakers and banks. Multiple crises for both sectors have left shares particularly unloved, even though they stand to benefit the most from a pick up in global demand, he said.

Wrong Timing

The DAX has picked up pace in recent weeks, up 8.5 percent since Aug. 29 -- about twice the gains for the S&P 500 -- as a rally in the euro sputtered. That's even as the country's elections turned out a worse-than-anticipated result for the incumbent government, while an illegal referendum in Catalonia raises the specter of political risk once again in Europe.

U.S. investors have bailed at the same time that the DAX has rallied, yanking money from the $4.7 billion iShares MSCI Germany ETF for the past five weeks.

The index is nearing the 13,000 level for the first time, leapfrogging most strategists' forecasts for where it will end the year. The rally has been supported by data showing unemployment at a record low, while the economy picks up pace. Bankhaus Lampe KG's Ralf Zimmermann, who predicted in September that the DAX had only a little more room for gains, admits he may have been too cautious.

“I've been surprised by how solid the macro data has been in Europe,” Zimmermann said from Munich. “That bodes well for DAX earnings. There's clearly catch-up potential, given it's so much cheaper than equities elsewhere.”

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh, John Viljoen