Wednesday, March 25, 2015

Stock Market: Germany - The DAX Rally Explained

(Drivebycuriosity) - Germany`s stock market is on a tear. The DAX, the gauge for the German stock market, gained over 40% in the past five months (ritholtz).

The German rally looks surprising in the face of all the negative reports about Europe´s economy. But it looks like that Germany`s economy is the winner of the Euro crisis. I think there are at least 4 reasons for the German stock market gains:

1. Because of the crisis the Euro dropped more than 20% since last Summer. This is a huge advantage for the German industry which is traditional very focused on exports. Now companies like Volkswagen, BMW, Adidas, BASF (chemicals), ThyssenKrupp (infrastructure & steel) & Siemens (infrastructure, energy plants) can sell their products much cheaper on the global markets.

2. The European Central Bank is flooding the markets with liquidity (QE) and squeezed interest rates to zero. The DAX-companies can easily refinance themselve for almost no costs.

3. Salaries in Germany didn´t rise much in the reent years which gives German companies another cost advantage.

4. The drop of oil and other commodity prices also reduced the costs considerably. Cheaper energy and food also enables European consumers to spend more money for other goods & services which is now rekindling the retail sales in Germany, meaning more demand for Adidas, Volkswagen & Co.

5. The austerity policy (public spending cuts) of the recent years led to less government influence and less bureaucracy. The German economy is now leaner and more efficient than before. Private enterprise gained more scope which animates more private investments. Money is used more efficiently leading to higher returns.

Monetary stimulus, the low Euro and cheap oil should create strong tailwinds for the Germany economy and should keep the rally alive in the coming months.


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