(Bloomberg) -- If you’re considering shorting China-exposed German stocks because of the ongoing trade war, it may be too late, says Jefferies.
While recent data from Europe’s biggest economy presents a “full-blown horror show,” there is some indication the negativity may be bottoming out, according to strategists led by Sean Darby. A bounce in China’s credit impulse, which is strongly correlated with German PMI data, and already depressed share prices are reasons to be cautious with any short plays on companies with high exposure to China, they wrote in a note Wednesday.
Short positions look limited for two of the biggest exchange-traded funds tracking the DAX. Short interest for the iShares Core Dax ETF stands at 0.2% of shares outstanding, down from 1.3% in October, while it’s at 2.5% for the iShares MSCI Germany ETF, down by more than half since a high in July, data compiled by Markit show.
Read more: Investors Shrug Off German Recession Angst for Star Stocks
Jefferies strategists say they remain bullish on German equities, even as sentiment suggests some caution. While a “triple witching” of autos dependent on diesel and China trade, a trade conflict with the U.S. and Brexit concerns have weighed on its economy, wages are still firm, they wrote.
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