Sunday, January 29, 2012

Stock Markets: Advantage DAX

The year started with solid gains for the international stock markets, thanks to the rising risk appetite of investors. So far, Germany has been the best performing G7 country ( The DAX, the German stock market index, gained around 10% year to date and almost 30% since last September (

The recent rally is no surprise. It seems that the German economy is the winner of the Euro crisis. Since last summer the Euro dropped around 10% ( The German companies gained a huge advantage because now they can sell their products cheaper on the global markets.

Germany also has the lowest interest rates in Europe because it is regarded as the European safe-haven. The relatively low financing costs give the German economy an additional advantage against their global competitors.

By the way: The Dax is a collection of multinational corporations ( ). Companies like Volkswagen, BASF (chemicals), ThyssenKrupp (infrastructure & steel) and others earn a large part of their revenues overseas and participate in the growth of China, Brazil and other emerging markets.

The DAX, which contains just 30 stocks like the Dow Jones, is a bit more volatile than its American counterpart because of the high weighting of the financials (Deutsche Bank, Commerzbank, Allianz, Munich Re). For my taste the DAX has too little technology in it. The business software company SAP, a rival to Oracle, is the only noteworthy German global player in the technology sector. Therefore the DAX lacks the sex appeal of the NASDAQ.

International investors have to calculate the wild swings of the Euro on the currency markets. This year a rising Euro added to the gains. But in the last year, a falling Euro temporarily worsened the losses. It looks like Euro & DAX are now marching lock-step because both react to the changing risk appetite. The swings of the Euro could magnify the volatility of the DAX.

The DAX now has a bet that Europe will recover soon. Investors who want to take this risk could do that with an ETF on the DAX. The provider of the iShares family offers the iShares DAX® (DE) (, which is traded in Germany with the number DE0005933931 ( The same provider has another ETF, the iShares MSCI Germany Index Fund (EWG), which is traded on New York Stock Exchange  ( This ETF depends on a different German index, calculated by Morgan Stanley, the MSCI Germany Index.

Disclosure: I don`t own any DAX stocks.

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