Important Maintenance: Saturday, 13 Sep 2025 09:00 to 17:00 CEST
Springtime for Germany’s DAX?
7/3/2025
The DAX has hit a record high, outperforming smaller German stocks. Investors expect a business-friendly government. But many challenges remain.
In recent decades European stocks, especially the German benchmark index DAX, have rarely outperformed their U.S. counterparts. Even rarer have been the periods, in which the DAX has also outperformed its domestic mid-cap and small-cap competitors MDAX and SDAX.[1]
And yet, the total returns for the DAX, which just set a new record high, currently exceed those of the SDAX, which is unusual indeed, as the chart for the past 10 years shows. To explain all this, it helps to have a closer look at what these indices actually contain.
During the past three months, the strong performance of individual DAX heavyweights has played a central role. Companies such as SAP, Rheinmetall, Siemens and Deutsche Telekom have contributed significantly to the rise in the index. SAP benefited from the growing demand for Artificial Intelligence (A.I.) and cloud solutions, while defense companies have been boosted by increasing defense spending. These themes played less of a role in the German small- and midcap segments.[2]
The DAX may also have benefited from a shift by investors away from the U.S. market. U.S. tech stocks reached high valuations last year amidst much technology-related excitement, while European blue chips remained comparatively cheap. Now, however, investors could be nervous about U.S. valuations and economic prospects under Donald Trump. Meanwhile, the European Central Bank (ECB) has further supported European markets by cutting interest rates, making equities more attractive relative to traditional savings products and, over time, easing companies’ interest burden.
The election victory of the Christian Democratic Union (CDU/CSU) under party leader Friedrich Merz in February has also had a positive impact on German stocks. Especially the domestically focused equities in the MDAX have reacted most positively. Overall, there seems to be relief that another unwieldy three-party coalition has been avoided and investors hope that a business-friendly government could raise defense spending and investment in infrastructure.[3] However, we believe that there might be a good chance that much of this hope is already priced into German stocks.