Once-Bitten DAX Traders Push Bearish Options to Highest in Year
2016-05-09 23:00:15.0 GMT


By Carolynn Look
(Bloomberg) -- The spell of trader skepticism that
descended on Germany’s benchmark DAX Index as it surged toward a
bull market last month has done nothing but intensify.
Bearish put options outstanding on the gauge rose 9 percent
since April 21, when the DAX reached this year’s high, compared
with a 5 percent increase in bullish calls. As a result, the
ratio between the two stands at 1.54, near the highest in a
year. Even after a three-day rebound, the DAX is 4.4 percent
below its peak from two weeks ago, and volatility in recent days
topped that of benchmark indexes of Spain and Italy.
The rally that pushed the DAX up as much as 19 percent from
its February low has lost momentum on concern that global growth
is slowing, hurting earnings. While German factory orders picked
up in March, the nation’s economy is forecast to expand just 1.5
percent this year, the weakest pace since 2013. Analysts have
already cut their projections for profit gains at DAX companies
by 3.3 percent since January.
“The DAX won’t reach a bull market until the earnings cycle
turns around, and the fundamentals are just not supporting
this,” said Bernd Ondruch, managing partner at London-based
Astellon Capital Partners, which oversees $700 million. “High
cyclical, global trade, and China-related exposure make the
index more volatile. The recovery in the DAX in recent weeks is
not sustainable in the absence of earnings growth.”
2016 has been a tumultuous year for markets, but German
companies -- more dependent on China than others in Europe
because of the close trade ties to the Asian country -- have
felt the pinch more. The DAX tumbled 19 percent through Feb. 11,
becoming among the world’s biggest losers. It then posted the
strongest rebound of its peers, beating equity markets of
France, Britain, Spain and Italy through April 21.
Options that profit if the DAX falls 9.8 percent by next
month are the most owned, data compiled by Bloomberg show. The
cost of puts versus calls has also jumped, and bears are now
paying the most since September to hedge.
The wild moves have dragged the DAX down 7.1 percent this
year, sending its valuation to about 12 times estimated earnings
-- that’s 17 percent lower than for the Stoxx Europe 600 Index.
Yet the discount isn’t enough to draw traders to the
market. They’ve taken money out of the biggest exchange-traded
fund tracking the German gauge almost every week since February,
withdrawing more than $870 million this year. The nation’s
shares were the most-disliked in Europe by U.S. traders and had
more outflows than even China.
“Growth worries haven’t gone away,” said Mike Ingram, a
strategist at BGC Partners in London. The DAX has had “had a
nice bounce but there’s not really a lot of conviction behind
it.”

To contact the reporter on this story:
Carolynn Look in Frankfurt at clook4@bloomberg.net
To contact the editors responsible for this story:
Cecile Vannucci at cvannucci1@bloomberg.net
Alan Soughley