German DAX Beats World With More Gains Expected
Comment of the Day

December 30 2015

Commentary by David Fuller

German DAX Beats World With More Gains Expected

Here is the opening of this report from Bloomberg:

German stocks outperformed European and global peers in 2015. Investors are betting on more gains next year.

The DAX Index climbed to 27 fresh peaks this year before tumbling into a bear market, and volatility more than doubled. Still, it’s poised to end the year up 11 percent, beating the Stoxx Europe 600 Index and the MSCI All Country World Index.

Strategists predict the benchmark will rally in 2016 on optimism that low oil prices and a weak euro will benefit companies. While exporters got an early boost from the European Central Bank’s quantitative-easing measures this year, a rout triggered by China’s surprise currency devaluation and Volkswagen AG’s emissions scandal wiped out as much as $368 billion from the value of German companies. Since a September low, the DAX has recouped about half those losses amid more swings.

“It was a very good year if you were disciplined and stuck to your investment themes,” said Michael Woischneck, an equities fund manager who oversees the equivalent of $156 million at Lampe Asset Management in Dusseldorf, Germany. “Oil and the euro being where they are should support growth. We could see another good year for the DAX in 2016.”

David Fuller's view

This opening overstates the German DAX performance because that 11% gain for the year to date mentioned above was in Euros.  Today, with DAX closing lower it is up 9.56% for the year in EUR, versus a decline of 1.33% when quoted in USD.  It is also slightly underperforming the Italian Index with one more day of trading left in 2015.  Additionally, DAX is also a total return Index, meaning that dividends are included.  This is advantageous if you are buying it on a medium to longer basis as DAX currently yields 2.76%.

I am mildly optimistic about German in 2016 despite all the European Union’s problems - from its undemocratic bureaucracy leading to fractious debates, to perennially slow GDP growth since the Euro’s introduction on 1 January 1999, to today’s out of control migrant crisis.  Perhaps I am a naïve optimist but could the situation get much worse in 2016?  Well, even if it does, Germany’s economy still has a strong engine which would lose some of its competitive advantage without the single currency.  

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