DWS raises DAX price target to 18,700 points*

Despite the good performance of the German benchmark index in the current year, DWS still sees potential for the DAX and is forecasting a 12-month target price of 18,700 points*. "This assessment particularly reflects the improved economic expectations," explains equity portfolio manager Sabrina Reeh. "From the second half of the year, we expect rising leading indicators and successively better earnings growth rates." On March 13, the DAX reached the 18,000-point mark for the first time in its more than 35-year history.

The stock market is going from one record to the next, even though the German economy is weakening: how does that fit together? Reeh, a specialist for German equities, points to the export strength of the German heavyweights: "The 40 DAX companies are globally active and generate around 80 percent of their earnings abroad, where the current economic situation is better than on the domestic market. According to Reeh, the prospect of a turnaround in monetary policy should also provide support: "We assume that the central banks in both the USA and the eurozone will begin to cut interest rates in June. This should have a positive effect on companies' willingness to invest, due to better refinancing possibilities," explains Reeh. She also takes a positive view of wage trends: "A falling inflation rate as well as increased wages should lead to an increase in real wages during the course of this year," says the portfolio manager.

DAX remains favorably valued

The DAX valuation should also offer scope for further growth. According to Reeh, the leading German index is still comparatively cheaply valued with a P/E ratio of 12.6 twelve months forward: "The valuation discount of 40 percent to the American S&P 500 Index is currently at a historic high and appears excessive in view of the solid earnings situation of the DAX companies."

Looking at the sectors, Reeh expects that the energy-intensive chemical sector could see an upturn in 2023 after a difficult year: "We are betting on a recovery in volumes from a very low base." She remains positive for companies in the information technology and healthcare sectors. Within the industrial sector and also with regard to the automotive sector, however, she is more selective.

Despite increased optimism, Reeh also sees factors that could weigh on sentiment in the coming months: if inflation does not fall as expected, the market will probably have to wait longer for a turnaround in interest rates. "Geopolitical risks could continue to cause volatility on the markets," says Reeh.

*) March 2025

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