Risky Business

DAX running out of steam

DAX reuters_distort
Germany's blue-chip DAX can only go up for so long.
  • Why it matters

    Why it matters

    Stock highs built on cheap money carry hidden risks of worse trouble ahead for the global economy, the author warns.

  • Facts


    • Germany’s export-oriented economy feels the effects more than most of problems in other markets around the world.
    • The parallel fall in the value of currencies and raw materials in Europe is giving rise to fresh worries about deflation.
    • Stock prices of U.S. companies listed on the Dow Jones Index are already higher than those of German companies.
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The British economist John Maynard Keynes once said there were three things that drive people crazy in this world – love, jealousy and stock prices.

Anyone looking at the frenetic ups and downs in the markets recently might have been reminded of that saying.

First, the gamble over Greece was at the root of fluctuations in the German stock index. Now it’s the fear of a downturn in China that is causing adrenaline rushes on the exchange. 

These fluctuations are, above all, an alarm call. The six-year-long boom on world stock markets, driven by an unprecedented flood of cheap money worldwide, has been accompanied by a buildup of risk. The air has also become thinner for export-dependent German companies in the global markets.  

China is not the only risk factor – just the most visible. It is true that the country showed incredible economic resistance and stamina coming through the global financial crisis in 2008. But its economy is gradually running out of steam.

The “Middle Kingdom” is suffering the initial symptoms of three debt-fueled bubbles: an overheated investment climate in industry, a real estate boom and a spectacular upturn in equity markets.

Many other emerging markets are also struggling with big problems, brought on by the fall in prices for raw materials, and the flight of capital into the dollar area.

All of it is a burden for Germany’s export-oriented economy – and therefore its stock prices.  

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