German Exchange Chief Hints at ‘Palpable Increase’ in Investor Confidence

Terry Flanagan

After the upbeat start to the trading year yesterday, with markets rallying around the world on news of an eleventh-hour deal to prevent the U.S. from falling off the so-called ‘fiscal cliff’, some market participants are becoming exceedingly bullish on prospects for 2013.

“We can already sense a palpable increase in investor confidence in the financial markets,” said Christoph Lammersdorf, chief executive of the Stuttgart stock exchange, Germany’s second largest venue behind Frankfurt and Europe’s leading venue for retail investors, noting that policymakers had made good progress in containing the European debt crisis.

“Thus, it is only a question of time before also private investors re-enter the market in a major way.”

However, financial markets have only just stumbled out of 2012—a year in which investor confidence fell to a low ebb following a series of high-profile scandals that rocked markets including the Libor rate rigging incident, JPMorgan’s $5.8 billion ‘London Whale’ losses, the trading snafus involving the IPOs of Facebook and Bats Global Markets and the near-catastrophic software glitch suffered by Knight Capital to name a few.

Added to this were the continued muted volumes on exchanges in 2012, caused in part by the global economy still being shackled by the effects of the financial crisis of over five years ago.

“Traded volumes on European and German stock markets declined markedly in 2012,” said Lammersdorf. “The Stuttgart financial market, too, has been affected by this trend, as private market participants have remained extremely circumspect in their investment decisions.

“Despite the market highs recently attained, such as the all-time high on the MDAX [a stock index which lists German companies and is calculated by Deutsche Börse, the operator of the Frankfurt exchange] or the four-year peak on the DAX [the German blue chip stock index], many private players are still unsure whether the time is right to make increased investments in securities.”

This positive start to the year could also be put down to the traditional ‘January effect’ boost. And with the underlying economic picture far from rosy, 2013 could turn out to be a similar one to 2012, which also saw markets rise in the first couple of months of the year before tailing off, although some commentators believe that this year may prove slightly better than the year just gone.

“Although the best case scenario is off the table, U.S. markets are breathing a sigh of relief that the tax cliff has been averted—at least for a few more months,” said Joanna Shatney, head of US large-cap equities at U.K. fund manager Schroders.

“The final package holds enough for both the bears, given that we will have to revisit the fiscal worries in the next few months, and for the bulls—who believe that the near-term risks have been pushed aside.

“It has been our belief that the cliff would be manageable and that as long as the wall of worry continued to exist, U.S. equity markets should continue to move higher in 2013, given low expectations and low historical valuations.”

Max King, a strategist in Investec Asset Management’s global multi-asset team, added: “Political muddle, mistakes and self-delusion will be as much of a feature of the investment landscape in 2013 as they were in 2012—and should be no barrier to similarly solid returns.

“Of much greater importance is the question of whether steady global growth will stabilize the outlook for corporate revenues and earnings after over 18 months of steady disappointment. If so, equities are likely to perform well in 2013; if not, returns will probably be dull.”

Meanwhile, the London Stock Exchange dampened the feel-good factor somewhat on the first day of 2013 trading following a technical glitch at 7am yesterday that delayed the release of 100 company announcements by around 90 minutes.

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