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It’s pure exhilaration that reigns on the German stock market at the moment: the Dax is climbing and climbing. Since the stock index of the largest German companies broke the 18,000-point sound barrier on Wednesday morning, the counter has continued its rise.
At first glance, this is surprising, because the economy in Germany is not doing very well at the moment: at -29.6 points in February, consumer confidence is lower than it has been for a long time, and the unemployment rate in our neighboring country has also increased. It increased by 6.1 percent in the January-February period.
Why isn’t Germany doing well economically?
“The German economy has entered a recession,” says Sergio Rossi (52), professor of macroeconomics and monetary policy at the University of Freiburg. The German economy is shrinking. Last year, Germany’s gross domestic product (GDP) fell by 0.3 percent. GDP in Switzerland increased by 1.3 percent over the same period.
The reason for this is the chain of events since Corona: After the virus, Germany struggled with rising prices due to the war in Ukraine. Many goods imported by Germany suddenly became expensive. In addition, the European Central Bank gradually increased the policy rate, which is currently 4.5 percent. This has an impact on food prices and the real estate market. Finally, the pressure on consumers is increasing, many things are becoming more expensive and many German companies have been forced to tighten their belts in recent months. There were mass layoffs.
At the same time the DAX is rising, how does this work?
“Financial markets often react adversely to the so-called real economy,” says Rossi. If a country’s economic situation is not good, the stock market may rise. Because then some players in the stock market feel huge profits: more dividends and more distributions. They buy too.
The hope that interest rates will fall is currently fueling all markets. Money would become cheaper again, purchasing power would increase again, and profit distributions would also increase. US indices such as Dow Jones, Nasdaq technology index and S&P 500 reach record levels from time to time.
So why does DAX outperform SMI?
DAX has been leading since the beginning of the year. The stock index of the 40 largest German companies rose by around 8 percent in the last three months. The stock index of Switzerland’s 20 largest companies (SMI) increased by around 4.5 percent in the same period.
Heavyweights such as Nestlé, Roche and Novartis are traded on the Swiss stock exchange. These companies are less dependent on interest rates than others. DAX, on the other hand, is a performance index, meaning it takes dividends into account. This can accumulate over time.
But Rossi says things don’t have to go on like this anymore. The situation may reverse again if there are large sales in the German stock market due to the bad economic situation. Because then companies would start to make losses and shareholders would be saved.
Is there a connection between Germany’s struggling economy and the rising DAX?
Yes. “Various financial institutions buy stocks and shares of companies when they announce layoffs because they believe this will increase overall profits,” says Rossi. However, companies that buy back their shares for financial reasons also increase their assets in the short term, and with it, stock market prices also rise. “Share prices are therefore strongly linked to the performance of the respective companies.”
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
