The Dax has reached the same level as before the Ukraine war.
(Photo: Reuters)
A war in Eastern Europe, a smoldering energy crisis, a world economy that is still weak – nevertheless, the 40 Dax companies have gained almost a third in stock market value since the end of September. Despite the small phase of weakness on Friday, the Dax is back as high as it was before the start of the Russian war of aggression in Ukraine almost a year ago. Can this go well?
In fact, there were alarming signals from the individual companies:
- The chemical group BASF recently shocked with a net loss for the year because Russia activities were removed from the balance sheet.
- Siemens Energy cannot get out of the red because the Spanish subsidiary Gamesa is causing lasting problems.
- The sporting goods manufacturer Adidas is suffering from calls for a boycott by the Chinese government and management errors because the sporting goods manufacturer has clung to its controversial rapper Kanye West for too long, whose collection can no longer be sold.
But there are always problem companies in a stock market index – these are isolated cases. The rapid recovery of the Dax as a whole is justified. The proof: The 40 corporations will earn in 2022 and, as of now, 2023 almost as much as in the record profit year 2021. Measured against this, the price increases reflect a realistic picture, because each share is a share certificate in the company. This increases the more the company earns and the better its prospects are. Their value falls as earnings fall and the outlook darkens.
Due to their global presence, most of the DAX companies are earning handsomely, around a dozen times as much as ever before. The companies cleverly compensate for weaknesses in one region with growth in the other.
In 2022, China weakened because the government had decreed a zero-Covid policy for the country and the associated standstill of large parts of the economy. After the abrupt lifting of the draconian measures, China is recovering at an above-average rate. This will continue in 2023.
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On the other hand, demand from the USA, which has been robust for years, is likely to decline this year. The world’s largest economy is growing more slowly in the face of many interest rate increases, and may even slip into recession.
The horror scenario did not materialize
It becomes difficult for the Dax companies when two or even three of the major economic regions – Asia, America and Europe – drift into a downturn at the same time. This is exactly what many investors had speculated on after the outbreak of the war. That’s why prices fell so low.
This horror scenario did not materialize. Prices can even rise further as long as the leading economic indicators in Europe and Asia continue to improve, signaling rising demand and corporate profits.
This positive stock market scenario is jeopardized if one of the geopolitical risks intensifies. Be it that the war in Ukraine is escalating. Or that tensions around Taiwan are rising, making a direct military confrontation between China and the US a possibility. The Dax companies, which are strong abroad, would be particularly hard hit by western sanctions against China.
Is it therefore advisable not to buy any more shares at the now higher price level? Everyone has to decide that for themselves. The investment horizon and the freely available capital that is not needed in the medium term play an important role in the decision. But anyone who hopes for a time without risks in order to then get on board will have to wait a long time, probably even forever.
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