Are German stocks getting cheap?

Frankfurt blue chip stock index DAX is one of the biggest fallers during the recent financial turmoil. Just look at the 5 year graph of the DAX index (click the chart to enlarge).

DAX has declined more than 25% already this year compared to S&P500 (9%) in the States or FTSE100 (13%) in UK. So the question is whether German stocks are getting cheap? On the following chart P/E ratios (stock price to earnings per share) of all the companies included in the DAX index are presented (click to enlarge).

While European banks are suffering a possible liquidity crisis (hence the low valuation) Commerzbank's stocks are good for gambling. The low valuation of most stocks seem to price in a double dip recession in Europe. We could see a nice rally with cheapest stocks from manufacturing industry once economic data gets more positive. Upside of 30% from current levels would not be anything extraordinary. One of my favourites from these stocks is BMW. Even though Europe and US might be slowing we have a major consumer boom in China and companies with big Chinese exposure might still do well this year and the following year. Hence my sympathy for BMW as well.

We'll see how much downside the DAX index still has and whether we're entering a double dip recession. Those who believe in a slow recovery rather than a recession might just start shopping, me included.