MW The German DAX has doubled in the last decade, but only after enduring a 22-year hangover first

By Barbara Kollmeyer

Stocks in Germany heading for best performance in Europe, but a difficult may lie ahead in 2025

While global investors juggle headwinds such as a potential collapse of the the French government and surprise political tensions from South Korea, one of Europe's biggest markets has reached a new milestone.

Germany's DAX index DX:DAX closed at 20,016 on Tuesday, marking its first-ever finish above the 20,000 level. On Wednesday, the DAX was up another 0.7% to 20,160, while the French CAC FR:PX1 posted modest gains ahead of a no-confidence vote on the government later.

Read: Bond 'vigilantes' are targeting France - for different reasons than in the U.S. or U.K.

Laying out just how hard stocks in Germany have been working to reach 20,000 was German asset manager DWS, which tracked the DAX's 37-year journey from 1,000 to 20,000.

The index, which launched in July 1988, took six years to double to 2,000 points, and another 4 years to double to 4,000 in mid-1997, followed by a quick 2.7 years to reach 8,000 in March 2000, DWS pointed out in its CIO Daily on Wednesday.

"What followed was a 22-year hangover before 16,000 points were reached in November 2021. And it took the DAX 10.5 years to double from 10,000 to 20,000," DWS said.

Investors could have achieved a twentyfold 8.4% per annum return by buying the DAX in 1998, the asset manager noted.

To be sure, the DAX has stood out among European markets this year, with data from FactSet showing a 20% year-to-date gain (matching 2023's return) that only Spain's IBEX XX:IBEX nears at a 18% rise, though Germany remains in the shadows of the mighty S&P 500 SPX, up 26% as 2024 winds down.

As for why the index is holding up so well - even the French CAC 40 FR:PX1 managed a 0.4% gain on Wednesday - Daniela Sabin Hathorn, senior market analyst at Capital.com credits "relative calmness on the US tariff front, a weaker EUR/USD and the expectation of multiple rate cuts from the European Central Bank."

The DAX's gains come even as German purchasing managers index data showed continued sluggishness on Wednesday, with a recession and a potential loss by Germany's coalition government in next year's election, said Hathorn.

JPMorgan strategists led by Dubravko Lakos-Bujas and Mislav Matejka told clients in a recent note that they prefer U.S. equities over those of the eurozone for next year due to expectations Europe will continue to face structural issues.

They say the eurozone "remains an underweight given a combination of persistent growth and earnings downgrades, challenging politics and disappointing China growth." A stronger U.S. dollar will also be a headwind for developed markets, but once those issue are worked through and central banks ease monetary policy further, equities in Europe could end higher on a 12-month basis.

The DAX has been able, though, to count on support from individual stocks rather than any particular sector. While investors in the U.S. have boosted their investment portfolios with exposure to tech-focused stocks such as Nvidia $(NVDA)$, the DAX has been lifted by solid gains for business software group, SAP (XE:SAP), along with reinsurer Munich Re (XE:MUV2), and defense-related stocks such as Rheinmetall (XE:RHM).

Goldman Sachs analysts flagged in September that the DAX has managed to brush aside the country's ongoing economic struggles thanks to its own "Magnificent Seven" companies - Allianz (XE:ALV), Deutshe Telekom (XE:DTE), Merck (XE:MRK), Munich Re (XE:MUV2), Rheinmetall (XE:RHM), SAP (XE:SAP) and Siemens Energy (XE:ENR).

-Barbara Kollmeyer

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December 04, 2024 07:30 ET (12:30 GMT)

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