DAX Lags as German Economy Growth Halts

The DAX 30 index is the Germany’s
response to the United States’ Dow 30. The index is made up of the biggest
companies in Germany. The companies are chosen in such a way that they
represent how the economy is doing. The biggest company in the DAX index is SAP,
which is valued at more than €129 billion. This pales to the Dow, whose biggest
company is Apple, which has a market cap of more than $810 billion. Other key
companies in the index are Siemens, Allianz, Daimler, and Linde. The chart
below shows the performance of DAX and Dow in the past one year.

As shown, the DAX has
underperformed the Dow by a large margin. While the Dow has gained by 7%, the
DAX has declined by more than 10%. The reason for this is that the German
economy is not doing well. Data released this week showed that the economy had
stagnated. This is in comparison to the US economy that has continued to grow
boosted by the stimulus by the Trump administration.

Another reason why the index has
not performed well is that the German government has been increasingly
conservative. This is the main reason why it has managed to have huge
surpluses. While surpluses might seem good, they come at a price of low
investments.

Investors in Germany have also
been concerned about the Trump administration. The American government has
threatened imposing tariffs on cars from Germany. If this comes to pass, it
will mean a lot because of the scale of the German auto industry.

In addition, the auto industry
has been under pressure especially after the Volkswagen emission scandal. This
scandal has led to stricter emission standards that have affected the
automobile industry. The three biggest German automobile manufacturers – VW,
BMW, and Daimler – are in the index. The recent rally was fueled by hopes that
the US will soon make a deal with China.

The index has risen from a low of
€10,276 in December and reached a YTD high of €11,377. However, the growth YTD
has also lagged behind that of the Dow. On the yearly chart, this price is slightly
above the 21-day and 42-day EMA. The price’s RSI has also moved lower and has
recently reached a low of 50. In the coming days, there is a possibility that
the index will reach the December lows of below €11,000.

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