Stocks in Review: For the Markets, It was a Greek Tragedy

In the Shadow of Mount Olympus

There was a spate of positive economic news for Germany this week. The unemployment rate hit a record low for the second month running in January, falling from 6.6% to 6.5%, the lowest level since German reunification in 1990. And although the German statistics agency also reported a drop in consumer prices, fears about widespread deflation were tempered somewhat by the stimulus measures announced by the ECB last week.

February consumer sentiment was up. December import prices were down. So why have the stock markets been so tepid this week?

In a word: Greece. The financially troubled nation held elections over the weekend, and 40-year-old Alexis Tsipras scored a not-unexpected victory. However, the margin of victory was larger than many had predicted, and in his first few days on the job, he’s already making some moves that have the German government – and German investors – worried.

Perhaps the biggest surprise was the appointment of radical professor Yanis Varoufakis as Finance Minister. Varoufakis has described German austerity policy as “fiscal waterboarding,” and is seen as a confrontational choice. A German official, speaking anonymously, said the pick of Varoufakis and other moves were “not good signs.”

But how much trouble could Tsipras and his new government really cause for a strong Germany, and a strong German stock market? No one seems to be sure. Much will depend on his eventual policies towards Russia and Russian sanctions, and whether he will seek an exit from the Eurozone. But I think it’s unlikely that even the worst possible outcome in Greece could collapse the German economy at this point: Germany and its businesses, in my view, are simply in too strong a position.

Still, EU leaders hold a summit in Brussels beginning February 12, and Tsipras is almost certain to attend. Until then, it’s likely to be a tense couple of weeks for the Eurozone.

The Major Indices

The major German stock indices seesawed through the week, with a strong Monday being offset by a terrible Tuesday, followed by modest gains Wednesday and a mixed Thursday. The DAX, MDAX, TecDAX, and SDAX were all up by less than 1% for the week as of Thursday’s close. The EuroStoxx 50, on the other hand, was down by a fraction of a percent, as fallout from the Greek elections were felt across the Eurozone.

TOPS and FLOPS for the Week

ÜBERFLOP: There’s no other way to describe the disastrous week that shares of SMA Solar Technology AG (ETR:S92) (FRA:S92) had. Germany’s largest solar company announced it would cut 1,600 jobs, or about 1/3 of its workforce, due to continued slackening demand. Additionally, the company doesn’t expect to return to profitability in 2015. Shares were down a jaw-dropping 15.2% on Tuesday, and the bloodletting didn’t stop on Wednesday, as shares dropped another 8.5% to an all-time low… and they were the biggest loser for the HDAX for the third day in a row on Thursday, dropping another 4.9%. All I can say is, “ouch!”

TOP: For the second week in a row, LANXESS AG (ETR:LXS) (FRA:LXS) is a top stock on the DAX, rising 7.2% on Wednesday, the best one-day performance of a DAX stock so far this week. However, while last week’s rise occurred on very little news, this week’s rise was far more justified: The company is projecting its EBITDA before exceptional items will be higher than previously anticipated for fiscal year 2014. CEO Matthias Zachert credited stronger-than-expected December rubber orders as well as some lower raw materials costs.

TOP: Shares of XING AG (ETR:O1BC) (FRA:O1BC) hit all-time highs this week after the company announced late last week that it had acquired all shares of Intelligence Competence Center, the largest job-search site in the German-speaking world. The company’s self-named social media platform for professionals is already almost exclusively used by German speakers, with 90% of searches coming from the DACH region of Germany, Austria, and Switzerland, so the purchase seems to be a natural fit.