rffrydr
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Joined: 30 Oct 2005
Posts: 16939
Location: Sunny California
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 Posted: Fri Aug 10, 2007 6:26 am Post subject: The DAX |
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The most worldy of first-world markets, the DAX:
| Quote: | HEADLINE: Dax facts THE LEX COLUMN:
BODY:
Germany's stock market has trounced its European peers. How vulnerable is it to the downturn in credit markets?
The Dax 30 has risen by more than 200 per cent since August 2003. In the past 12 months alone, it is up by a third, outperforming the rest of Europe by 19 per cent. Credit market tremors, though, have had an impact, with the index falling almost 8 per cent since July 6. As Goldman Sachs points out, the Dax has a high negative correlation with the Itraxx, which measures the cost of insuring against corporate default, suggesting that further deterioration in global risk perceptions will result in further falls in the index.
Investors may seek reassurance from the strength of the domestic economy. More Germans are in jobs - the unemployment rate is the lowest since 1993 - and business confidence is strong. Companies are reaping the benefits of a difficult period of restructuring and have regained global competitiveness. Profits as a percentage of gross domestic product, according to Citigroup, have risen to their highest since the 1970s, auguring well for investment. The corporate catch-up has further to run - the return on equity for the Dax, at about 13 per cent, is rising fast, but the gap with France's CAC 40, at15 per cent, or the UK's FTSE 100, at 20 per cent, has not yet closed. Meanwhile, in spite of its rally, the market is still at a small forward price to earnings discount to the rest of Europe.
These positive factors, though, could easily be overwhelmed if worsening credit conditions have a serious impact on the global economy. By value, Germany is the world's biggest exporter. More than 40 per cent of the Dax is made up of cyclical industrial stocks such as Siemens or BASF, which are highly exposed to global growth even if their sensitivity is more to conditions in big emerging markets such as China, than to the US.
With one of the highest betas of all developed markets, Germany's stock market is the opposite of defensive. If global credit concerns continue to spread, positive domestic fundamentals will not be enough.
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http://futuresource.quote.com/charts/charts.jsp?s=AX%20U7-DT
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