Pessimists have turned into demanders: clear change in sentiment among institutional investors
Summary
At least for institutional investors, neither inflation fears nor the threatening developments in the Middle East played a major role in their recent decisions. Despite these event risks, their previously negative sentiment - as measured by the Börse Frankfurt Sentiment Index - has improved significantly compared to the previous week, even though the DAX lost around 2.1% on the week. There is much to suggest that the desire to rid oneself of "old burdens" was the main reason for this.
However, we are observing a significant deterioration in sentiment among private investors. All in all, the conditions for a significant DAX rebound are not particularly favorable, according to Joachim Goldberg.
17 April 2024. FRANKFURT (Goldberg & Goldberg). The DAX has now seen its first major correction this year after all. Since our last sentiment survey alone, the stock market barometer has fallen by around 2.1 percent (point-based analysis). This is certainly in line with the bearish sentiment of the majority of institutional investors we surveyed. However, the circumstances that led to this significant setback - in relation to the all-time high at the beginning of the quarter, this is a drop of around 4.6% at times - will not please many players. This is because two of the most feared event risks for international fund managers have already materialized over the past few days.
According to the Bank of America (BofA) survey, which ended on April 11 and was published yesterday, these are the fear of inflation (41% of respondents cited this as the main risk) and geopolitical conflicts (24%). On the one hand, this relates to the USA. The development of inflation there has given rise to fears in some quarters that the US Federal Reserve may not be able to cut interest rates at all this year. On the other hand, the escalation of the conflict between Israel and Iran has led to increased risk aversion among participants on the financial markets.
Your own position, not the news situation, is decisive
While investors on both sides of the Atlantic may still be wondering whether the recent setback on the stock markets is just a correction or even the start of a bear market, the institutional investors we surveyed with a medium-term trading horizon may have an answer. This is because sentiment there has actually improved quite significantly, with the result that our Börse Frankfurt Sentiment Index has risen by 19 points to a new level of -7. The bear camp has shrunk by 14 percentage points, and a good third of those willing to switch have even ventured directly to the bull side and turned their commitments 180°.
With this massive change in sentiment, however, it should be borne in mind that some of the former pessimists did not make any profits on their bearish positions, but were probably able to get out of previous positions with a black eye. In other words, in some places the buybacks were not based on the economic and geopolitical situation, but solely on old positions that could now be closed out without losses, so that people were only too happy to move to the sidelines.
Fear of a major correction
The opposite sentiment was observed among private investors, who were clearly spooked by the latest DAX performance. The Börse Frankfurt Sentiment Index in this panel has fallen by 7 points to a new level of -9 - the lowest level so far this year. A large part of this development is attributable to those private investors that we survey via social media. There, the positive sentiment that has persisted for weeks has turned directly into pessimism to a considerable extent.
The result of today's survey is that the sentiment gap between private and institutional investors has practically disappeared. However, a relative view of the year to date shows a different picture. This is because the pessimism of private investors is significantly higher than the absolute level of -9 index points indicates. Meanwhile, we are even talking about slight optimism among institutional investors from this perspective. This means that the DAX is now lacking some of the previous demand that would have enabled a rapid "resurrection". The fact that the share buybacks to date have hardly led to any major sustained recoveries should also give pause for thought - an indication of long-term capital outflows. There is therefore much to suggest that the current correction phase of the DAX is not yet over.
17 April 2024, © Goldberg & Goldberg für boerse-frankfurt.de
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