The lockdown is coming. The federal government wants to stifle public life again. Gastronomy, sports and event businesses should therefore close. Travel traffic will be shut down. These announcements garnish politicians with the promise of extending business aid programs. Stricter contact and exit restrictions are hardly a shock. Citizens know what to expect from the shutdown in March. Companies and employees are also equipped for another phase of working from home.
Actually everything is known and tested. Nevertheless, there is uncertainty on the stock market. Since the beginning of the week, the German leading index Dax has lost seven percent. Investors are pricing in the lockdown, even though it’s a light version of the first. Economic effects can also be expected, even if only socializing is prohibited.
The cost of the crisis
The country’s economic institutions have already calculated what the first lockdown cost us: The German Economic Institute (IW) in Cologne is assuming a little more than six percent minus in gross domestic product. A mini-lockdown, in which neither the retail trade nor production facilities are shut down, has an impact on the economy: “Even less severe restrictions on economic life and the associated stagnation in the fourth quarter of 2020 could cost Germany around one percentage point or around 30 billion euros macroeconomic added value this year, ”says Michael Grömling, head of the economic research group at IW.
The downward prices in the Dax reflect this assumption: only the food delivery service Delivery Hero, which should benefit from the contact and exit restrictions, and Deutsche Bank, which presented a surprising profit, did better than the overall index. The hardest hit was consumer goods company Beiersdorf, which will suffer when people cancel their shopping trips.
Measures could be reassuring
If Chancellor Angela Merkel and the country leaders decide today on a coherent concept to contain the pandemic, the DAX investors could calm down a bit. But the specter of a hard lockdown is not off the table. It is only when the infection numbers are under control. In other words: The final decision should not be made in Berlin until one or two weeks after the start of the measures.
Jens Ehrhardt, founder and CEO of DJE Kapital AG, does not expect tough measures for the time being. “Many politicians are vehemently opposed to a blanket shutdown.” The market expert suspects that the government underestimated the economic costs and the overall effects of the first shutdown. “The price is the highest economic downturn since the Great Depression between 1929 and 1932,” says Ehrhardt. Although the immediate monetary and fiscal countermeasures would have prevented the worst this time around, he believes in a new version of the mallet method. In the spring, the governments oriented themselves heavily on the example of China, which would quickly get their infection numbers under control.
Investors should pay attention to this
Even if the mallet will not strike and clarity about the measures should have a calming effect: The share prices will remain volatile until the number of infections is curbed again. Investors who sense entry prices here should look for acceptable levels of debt, solid equity and robust profitability. You should keep your hands off companies like Lufthansa, Fraport or Tui, whose business model has come to a standstill due to the Corona crisis. Companies like Delivery Hero, which are benefiting from the crisis and are therefore in high demand, should also be avoided. Their price-earnings ratio is high: Investors pay a high price for the shares of the loss-making group. Profit-taking would be worth considering here. On the other hand, investors should put stocks from the “50 stocks for life” on the watchlist.