Expecting a significant surge in the index, potentially reaching double-digit heights.
Germany's DAX Reaches New Highs Amidst Positive Market Trends
After a series of positive developments, Germany's DAX, the blue-chip index of the Frankfurt Stock Exchange, has reached a new record high, challenging the 19,000-point mark. This comeback is largely attributed to the waning of growth concerns and positive developments among some of the index's heavyweights.
One of the clear top performers is software giant SAP, which, with a weight of nearly 15%, is riding high on the good growth prospects of its cloud business. The Deutsche Börse's decision to raise the weight limit for a single company from 10 to 15% allows the DAX to benefit more from SAP's share price gains.
The DAX's price-to-earnings ratio, based on expected corporate earnings for the next 12 months, is around 13, slightly below the 10-year average. This suggests a relatively undervalued market compared to historical standards.
If one calculates the analysts' price targets for the individual index members, the DAX has the potential to rise to more than 21,000 points over the next 12 months. Among the bulls are the strategists at DZ Bank, who have a target of 19,500 points by the end of the year. On average, 12 investment houses expect the DAX to reach 18,500 points by the end of the year, indicating a sideways movement.
However, a broad-based upward movement in the DAX is healthier than a rally driven by a few stocks. Long-struggling cyclical companies have also picked up, but they are still far from their old highs. Sectors like defense are contributing positively, with companies like Rheinmetall reaching record highs due to geopolitical tensions and acquisitions.
The significant decline in inflation gives the European Central Bank more room to maneuver. A further interest rate cut is expected at the September meeting, which would be a positive signal for the European economy and, consequently, for the German blue-chip index DAX.
In the second quarter, the Ebit of DAX members increased by nearly 17% in total. Insurance giants Allianz, Munich Re, and Hannover Re have performed well during the DAX's comeback.
Despite the positive outlook, the Ifo Institute's business climate index fell again in August, indicating that the economic recovery is not without its challenges. Analysts currently indicate cautious optimism after the DAX reached a new record high, pointing to a stable but sideways market in September with expectations for a potential upward breakout starting from October with the year-end rally. However, September remains traditionally a challenging month with possible volatility before then.
In contrast, the American S&P500 is trading at a premium of more than 15%. The European index Stoxx 600 looks similar, suggesting a potential opportunity for investors seeking undervalued markets. Despite the challenges, the DAX's comeback offers a glimmer of hope for the European economy.
Chemical giant BASF is currently missing more than 50% of its old highs, indicating that even in a recovering market, not all companies are equally benefiting. The key for investors remains a balanced and informed approach.
