Germany’s Dax index rose to a record intraday high on Friday as growing investor confidence in corporate earnings made it Europe’s second-best-performing main equity market this year.
The index, a measure of Germany’s 40 biggest listed companies, added 0.9 per cent to more than 16,320, surpassing its previous high of 16,290 set in November 2021.
Shares in Adidas and Siemens are up almost a quarter this year as investors have warmed to stronger than expected corporate earnings, enabling the market to shrug off concerns that Europe’s largest economy is on the cusp of recession.
The Dax has returned 17.2 per cent this year including dividends, marginally behind the 18 per cent for France’s Cac 40 but well ahead of the 6.2 per cent return from the FTSE 100, according to data from Bloomberg. Wall Street’s S&P 500 has returned 10 per cent over the same period, largely driven by gains for a select band of technology stocks.
Strong earnings were “underpinning the resilience of the market” and encouraging some investors “to turn more optimistic about the outlook for [European] equities,” said analysts at Bank of America.
Agnès Belaisch, chief European strategist at the Barings Investment Institute, said low unemployment rates had made for relatively strong wage growth, “helping firms pass on a large part of cost increases to retail prices, protecting margins and delivering surprisingly resilient earnings reports”.
US markets dominated by glitzy technology stocks have greatly outperformed those in Europe over the past decade but that trend has reversed since September.
Companies such as Airbus and Mercedes-Benz have risen 13 per cent and 12 per cent respectively this year as the manufacturing-heavy Dax has benefited from cooling energy prices and China’s economic reopening.
However, these and other positive catalysts had now “largely played out”, said analysts at Barclays, who flagged China’s “faltering” recovery and tighter credit conditions in the months ahead as key concerns.
“There is certainly not a fantastic, rosy macroeconomic picture emerging [for the Dax], said Carsten Brzeski, an economist at Dutch bank ING. “Certain financial markets are living a life of their own and have become slightly decoupled from the gloomy macroeconomic backdrop, which is in no way supportive of record high stock markets.”
The Dax hit its record-high shortly after the latest Zew indicator — a measure of investor sentiment — in May fell into negative territory for the first time since December, dipping 14.8 points to minus 10.7. Renewed weakness in the survey “points to weaker equity markets ahead”, said European equity analysts at Morgan Stanley.
German industrial production fell 3.4 per cent in March compared with the previous month, the biggest drop for 12 months, according to data released last week by the federal statistical office.
Eurozone inflation increased for the first time in six months to 7 per cent in the year to April despite the ECB’s aggressive monetary tightening campaign. “But we still have negative real interest rates, meaning there are no other alternatives to stocks”, Brzeski said.
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