Studio Guest – Jürgen Pfister on the volatility at the stock markets

Jürgen Pfister is chief economist at Bayern LB in Munich. We spoke to him about VW's see-sawing share price and the fallout for the DAX. DW-TV: Let's pull in Jürgen Pfister, head economist at Bayerische Landesbank in Munich. Did you ever think you would see the day when VW shares would make people millionaires overnight? Jürgen Pfister: We would generally have such situations with the Dax 30 where we have the big blue chips. The huge volatility and sharp increase in price make this a very special situation. DW-TV: Let's look at how dramatic. Volkswagen's stock performance has been. Over the last years it marked a decent, steady, upward trend. But in the last year, an increase of almost 1000 percent!! What do say when you see figures like this? Jürgen Pfister: The case of Volkswagen was due to a very specific situation, because of the ownership structure and the attempt of Porsche to acquire another huge stake in VW and at the same time, many investors, especially hedge funds, were speculating on the fall in the VW share. Altogether, this caused a very unusual price movement. DW-TV: This speculation helped drive up the price over 1000 euros last week. Has the Dax become a toy of gamblers? Jürgen Pfister: It would be very difficult to try this with another company in the DAX, because they don't have this specific ownership structure and they don't have a very specific situation such as Porsche trying to acquire a larger stake in VW. My guess is that it won't happen again in the next 10 to 20 years. DW-TV: So what happened with VW is something of a perfect storm. But what does this say about the reliability of the Dax as an indicator of Germany's equity market? Jürgen Pfister: This impression has suffered a bit as a result of this very spectacular movement in the market and price. But it's a very specific story - a one-off event that will not happen again. Hopefully, the confidence we have in the German equity market in general and the DX in particular will not be affected much. DW-TV: And of course Deutsche Börse has changed the rules, right. So we should be more confident? Jürgen Pfister: They have changed the rules, but even without this change in the rules it wouldn't have happened again in the next ten years. DW-TV: Porsche was able to increase its share in VW in secret - it didn't need to make reports to BaFin here in Germany. What happened to the notion that Germany's equities market is transparent? Jürgen Pfister: This is a different philosophy regarding financial regulation. BaFin controls banks, securities markets and insurance companies, but not industrial firms like Porsche. We have a special case here: an industrial firm engaging in acquiring another firm has produced turmoil on the financial markets. DW-TV: A new president takes office in the US in January. What would you like to see in terms of economic policy from Washington? Jürgen Pfister: The most pressing need is to address the energy problem. The US consumes much to much energy and is dependent on external sources and therefore has a huge deficit. Secondly, the savings imbalance we have, which means that the US needs to borrow several hundred billion dollars per years from other countries, which will not be easy to pursue in the future. And of course the healthcare system needs to be repaired, and this is a huge task for the new president. (Interview: Brent Goff)

DW-World | November 4, 2008

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