• Category: News

German DAX Index Rallies Past the 12,000-Point Hitting a New Record High

For the first time, the German DAX stock market went beyond the 12,000 point on Monday March 16. The DAX is German’s index, which features 30 major blue-chip companies. 

German DAX Index Rallies Past the 12,000-Point Hitting a New Record High
 

A look at the index shows that automakers BMW, Daimler and Volkswagen are the top three best performing companies listed on the DAX. 

Comparing U.S. car manufacturers to German manufacturers shows that the later constantly perform better. According to Bloomberg reports, stock comparison between Ford and Volkswagen shows that Volkswagen stock is performing much better than Ford. A similar comparison between General Motors and BMW indicates that BMW is a clear winner, while Daimler, who makes the Mercedes Benz when compared to Tesla Motors, has better performing stock.

The incredible performance of German index and the specific components could be attributed to the overall recovery in the economic performance of the euro zone. However, market observers also attribute the impressive performance of German stock to the fact that the Dutch exchange rate against the dollar has far outperformed that of the euro to the dollar.

Fawad Razaqzada, a technical analyst said, “In general, the markets are very bullish on European stock and on the DAX in particular and this has been the trend for some time now.

He added, “Sentiments have made a turn around and it is evident that investors in the U.S. are putting in a lot of money in purchasing European stocks. It seems that it will likely continue in this way against a background of ECB qualitative measures and as the euro area continues to gradually recover.”

The European Central Bank is implementing qualitative measures, which include the purchase of bonds worth 60 billion euros each month. So far, the measures have had a positive impact on European stock market, with the DAX 30 leading the pack in impressive performance.

The rigorous purchase of bonds by the ECB has seen the euro being pushed considerably lower and has in turn provided a significant boost for Germany, which is primarily export-dependent.

German carmakers are especially benefiting from a weak euro. The same applies for other large industrial stocks on the index including BASF and Siemens. Presently, the euro’s exchange rate against the dollar is at an all-time low, the lowest in 12 years. Goldman Sachs has said that in just six months, the euro will gain parity with the U.S. dollar.

It is indeed ironic that German stocks have received a boost from ECB’s bond buying initiative given that the Bundesbank does not fully support total quantitative easing by the ECB. Alastair Winter, chief economist at Daniel Stewart said, “The Bundesbank must be enraged that the DAX has soared by more than 20% in 2015 as investors see export earning as a new form of gold rush.”

So far, the German DAX index has done better than any other major equity index in Europe. However, this does not mean that at 12,000 the index has reached its climax. Razaqzada contends that next level investors should watch out for is 12,800.

He added, “A technical analysis of the DAX is extremely bullish. It is going up, almost in a straight line and it may be just a matter of time before it reaches 12,800 points.”

Market Impact

Some market observers are worried about the rapid ascendance of German stock. They have warned that such a massive rally could see stocks come tumbling down especially when the Fed raises rates. A raise in interest rates means that there will be a limited amount of money for investors to buy shares with.

 

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