The Dax is booming despite Germany in crisis - The secret behind the stock market.

The Dax is booming despite Germany in crisis - The secret behind the stock market.

Politically and economically, Germany is in a permanent crisis and the inflation rate is high. Nevertheless, the domestic stock market is in excellent shape. The DAX is currently trading at around 16,000 points, 100 percent above the low in March 2020. But how does this fit together? Isn't a stock index a reflection of the country's economy?

The answer is: rather no. The reason for this is that the problems and developments in the German economy have little impact on the internationally positioned DAX companies. The foreign share of the sales of the 40 index members is now over 80 percent. This is a significant increase compared to 30 years ago, when it was around 50 percent.

The state of the global economy and internal problems or progress are therefore particularly crucial for the DAX companies. Companies like Adidas, Bayer, Puma, Zalando and Infineon generate more than 90 percent of their sales abroad. The analysts therefore continue to stick to their positive profit expectations and are unimpressed by the economic slowdown in Germany.

From a fundamental perspective, profit forecasts for the next twelve months play an important role. These are even at record levels, which benefits the DAX. One reason for this is the companies' continued strong margins. Purchasing prices fall more sharply than selling prices. In comparison, consumer prices in the eurozone rose by 5.3 percent, while producer prices fell by 7.6 percent.

Despite the positive developments, the DAX has lost touch with Wall Street in recent months and has been hovering sideways around the 16,000 mark since April. Still, the market is cheap from a valuation perspective, with a price-to-earnings (P/E) ratio of 11.5. In historical comparison, the average over the last ten years is 14. The attractive dividend yield of 3.6 percent also contributes to the positive balance.

In historical comparison, most individual stocks look attractive. Some, such as Continental, Deutsche Telekom, Heidelberg Materials, Infineon, Merck and VW, trade at a discount of around 30 percent to their 10-year P/E ratios. Only the insurers and the automobile manufacturers BMW and Mercedes-Benz are fairly priced from a valuation perspective.

In conclusion, despite the current market situation, there are definitely bargains that have long-term potential. However, this assumes that the global economy continues to do well and that the central banks do not pursue a too tight monetary policy. In this case, the high profit forecasts could come true and reward the stock market in the long term.

Source: According to a report from www.t-online.de