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The DAX in Overdrive

81084099 DAX OP photo DPA
Going up, up and away? Source: dpa

Germany’s key stock market barometer, the DAX, finally made it. And it’s about time – Wall Street has been leading the way and showing how it’s done for some time now. But Germany’s blue-chip index reached an all-time high at just under 12,500 points. At €1.3 trillion ($1.42 trillion). Germany’s 30 largest listed companies have never been worth as much.

But much more importantly, the 30 companies, which include Allianz, Siemens and Volkswagen, are generating profits, quarter by quarter, at a rate that keeps the stocks at a fair price. Each company, on average, is valued around 14 times as much as it is expected to earn this year. That is moderate and somewhat reduces the fear of a crash. Many companies and investors alike still have bad memories of the one that happened at the turn of the millennium.

Back then, the DAX climbed just above 8,000 points, but the companies were bringing in only around a third of their present earnings. That made the stocks expensive – and it was the major cause for the crash that had the DAX plunge by 75 percent at its peak. A disaster that left behind deep and permanent wounds: To this day, a good third of all German investors stay away from the exchange.

But the image of only a moderately-valued DAX today, giving no cause for concern, is unfortunately only half the story.

In fact, four car stocks dominate the DAX and distort the overall picture. After rapid increases, BMW, Daimler, Volkswagen, and the parts supplier Continental represent almost 45 percent of the total sales and a third of all the profits of all 30 companies. That may make the carmakers happy, but makes the DAX extremely dependent on the weal and woe of the automotive industry. If, for example, demand drops in China, where the carmakers sell more than a third of all their cars, it will not just be the businesses concerned that are threatened with problems, but the whole stock index.

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