LIVE MARKETS-German bulls stay strong, but brace for 'air pockets'

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GERMAN BULLS STAY STRONG, BUT BRACE FOR 'AIR POCKETS'

More than three months since German elections ushered in a government that is breaking away from years of fiscal austerity, the country's shares have distinctly outperformed. Yet, many investors remain upbeat that the rally has room to run.

Among them is Lemanik portfolio manager Andrea Scauri, who has built a 40% portfolio exposure to the country mainly through medium-sized stocks .MDAXI and a holding in top lender Deutsche Bank DBKGn.DE.

His confidence stems from Germany's infrastructure spending plan, which he sees as an "epochal" driver for Europe, with all the knock-on effects that will benefit the economy. Combined with recently positive German business sentiment, he says this should "act as a flywheel" for capital spending and earnings.

Defence firms Rheinmetall RHMG.DE, Renk R3NK.DE and Hensoldt HAGG.DE, along with building materials group Heidelberg HEIG.DE are also among his favourite German picks.

"We're starting to see the first investments, the initial Capex, which will be the future business driving these firms," he says. "It's a trade that hasn't fully been priced in yet".

Furthermore, Scauri also anticipates billions of euros in fresh inflows coming from new exchange-traded funds targeting the German indices and defence stocks, which he expects will boost liquidity and support prices.

Since the vote in late February, the MDAX and DAX .GDAXI indices have risen around 12% and 8.5% respectively, while the pan-European STOXX 600 .STOXX has barely changed.

Yet, Scauri anticipates further gains won't be plain sailing: "There will be some air pockets, portfolio rotations and so on, but I believe this is a truly historic development for Europe".

(Danilo Masoni)

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