German equities have reached a 10-year low in relative strength versus global equities and are set for a continued period of underperformance, according to Riccardo Ronco, Head of Technical Analysis at Aviate Global.
Ronco has plotted the ratio between MSCI Germany and MSCI World (all USD adjusted) on a monthly chart going back 25+ years. Over that period the ratio has oscillated within a wide range between 0.80/0.85 and 1.50/1.60. The ratio is currently positioned around the middle of that range, but “breaking down at a fast pace” (see Chart).
Ronco thinks the ratio will test the bottom of the range, the implication being further underperformance of German stocks (in USD terms) of about 18 to 20% over the next few years.