German Equities Looking Attractive

German stocks, punished for the nation’s trade ties to Russia and Ukraine, have gotten too cheap to turn down for some of Europe’s biggest investors.

Raiffeisen Capital Management is adding to holdings, with earnings at DAX Index companies poised to rise 21 percent in 2014, according to more than 1,000 analyst estimates compiled by Bloomberg. JPMorgan Chase & Co. and ABN Amro Bank NV say valuations are compelling after the Ukraine crisis sent Germany’s benchmark gauge to 13.2 times projected profits, close to the cheapest level relative to Europe since at least 2005.

Stocks in Germany, which has more trades with Russia and Ukraine than any other country in western Europe, are down 2.2 percent this year, compared with a gain of 2.6 percent for the Stoxx Europe 600 Index. The selloff has gone too far, according to Raiffeisen’s Herbert Perus, whose firm recently bought shares in K+S AG, Deutsche Bank AG and EON SE.

“For us, it’s a buy at this level,” Perus, who helps oversee $36 billion as head of equities in Vienna, said by phone. “If you look at German companies, they are earning a lot, and many of them are market leaders. In the medium to long term, German markets are very cheap compared with Europe.”

After almost tripling between March 2009 and July 2014, the DAX retreated 10 percent in about a month, meeting the definition of a market correction. Escalating conflict between Ukraine and Russia, along with data signaling a slowdown in Germany’s economy, has erased nearly $180 billion from equity values. The DAX lost 0.7 percent on Aug. 22, paring a weekly gain, after Ukraine said Russia was invading the country under the cover of an aid convoy.

Relative Valuation

Selling pushed the DAX’s valuation more than 2 percentage points below that of the Stoxx 600, the widest gap since at least 2005, according to data compiled by Bloomberg. Germany’s biggest companies will boost earnings by 21 percent in 2014, compared with increases of 9.6 percent in the European gauge and 10 percent for the Standard & Poor’s 500 Index, estimates compiled by Bloomberg show.

“The selloff is overdone,” Lucy Macdonald, the chief investment officer for equities at Allianz Global Investors Europe, said in a phone interview from London. Her firm manages $457 billion. “Valuations are looking more interesting for Germany after the drop. The impact on corporate growth is relatively limited.”