Bloomberg News

German Stocks Are Little Changed as Skepticism Follows Debt Deal

October 28, 2011

Oct. 28 (Bloomberg) -- German stocks closed little changed, with the DAX Index still posting its best week in more than a month, as investors sought signals whether the rally this month is warranted given the outlook for Europe’s economy.

Deutsche Bank AG, Germany’s largest lender, advanced as Morgan Stanley advised buying the shares. Wacker Chemie AG sank 9.8 percent after saying it may miss its full-year targets.

The benchmark DAX Index rose 0.1 percent to 6,346.19 at the close in Frankfurt, the highest level since Aug. 4. The measure yesterday entered a bull market, commonly defined as an increase of 20 percent from the most recent low. The DAX is headed toward the biggest monthly gain since April 2009 in October. The broader HDAX Index also advanced 0.1 percent today.

Euro-area leaders said yesterday bondholders will take 50 percent losses on Greek debt and the European Financial Stability Facility, the region’s rescue fund, will grow to 1 trillion euros ($1.4 trillion), responding to global pressure to step up the fight against the sovereign debt crisis.

“Equity investors will be relieved a deal has been delivered and celebrate that fact,” said Chris Wyllie, a partner at Iveagh Private Investment House in London. “However, anyone thinking this is the euro debt crisis done and dusted has been at the punch already.”

October Gain

The DAX is poised for an October gain of 15 percent. The gauge has still fallen 8.2 percent this year amid concern that the euro area’s debt problems will slow economic growth.

“In the short term, the decision reached is just enough to get the job done, but we do need more details about the deal,” said Kevin Gardiner, head of global investment strategy at Barclays Wealth in London. “Early indications suggest that markets are agreeing with the conclusion. The agreement strengthens our underlying view: that a ‘muddle through’ scenario is the most likely outcome for the euro-zone area and the global economy itself.”

Deutsche Bank gained 1.2 percent to 33.20 euros, after a 15 percent gain yesterday that was its largest increase since March 2009. The stock was added to the “most preferred” banks list at Morgan Stanley, which said lenders in the region may need to raise less capital than investors expect.

Champion Banks

“In recent weeks we have been encouraging investors to buy a very small basket of national champion banks to play systemic risk compression given extreme investor positioning,” a team of Morgan Stanley analysts led by Huw van Steenis in London wrote in a report today. “The announcements of the summit broadly support this view.”

Commerzbank AG, the country’s second-largest bank, fell 4.3 percent to 1.95 euros. The stock jumped 16 percent yesterday.

Linde AG increased 1 percent to 117.10 euros after the world’s second-biggest maker of industrial gases reported third- quarter earnings before interest, taxes, depreciation and amortization of 804 million euros. That beat the median analyst estimate of 796.4 million euros in a Bloomberg survey, helped by cost saving and higher demand in emerging markets.

Volkswagen AG, Europe’s largest automaker, advanced 1.5 percent to 132.5 euros. Renault SA jumped 4.5 percent in Paris after France’s second-biggest carmaker reported third-quarter sales that beat analysts’ estimates.

Wacker Chemie slid 9.8 percent to 76 euros, the largest decline in almost three months. The Munich-based chemicals company reported third-quarter earnings and sales that trailed analysts’ estimates and said it sees “substantially” lower revenue in the fourth quarter.

Centrotherm Photovoltaics AG fell 9 percent to 13.65 euros. The maker of equipment used to produce solar cells said it is now “assuming” higher revenue for 2011 and a “slightly positive” margin in earnings before interest and taxes, which is a lower outlook than previous forecasts, according to UBS AG.

“Centrotherm is likely to have little cash-flow generation in 2011 and should have prepayment outflows in 2012,” UBS analysts wrote in a note. “As a result, we expect the balance sheet to continue to weaken in the quarters to come.”

--Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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