Investment idea: DAX influenced by U.S. politics and German election

Investment idea: DAX influenced by U.S. politics and German election

24 October 2017 from Tradingportalen

Earlier this year we claimed that the DAX, like other indices, benefited from the election victory of Donald Trump in the United States. Mid-April the German index was at about 12.300 points and has since then rose with 5.7% to 13,000 points.

Companies that are listed on the DAX benefit from the growing world economy. In October the International Monetary Funds (IMF) announced in their half-yearly World Economic Outlook that the worldwide economic growth will reach 3.6% this year and 3.7% in 2018, which is somewhat higher than the IMF predicted in July. This would be the strongest worldwide economic growth since 2011. However, the IMF warns that this economic recovery could be temporary and therefore it is necessary to carry out structural reforms to also realize economic growth in the medium term.

The DAX also benefits from the market relieve after the German election results. At the end of September, Angela Merkel won the elections with her political party CDU/CSU and she will commence her fourth term of office as chancellor. The political party reached 33% of the votes, which however was a loss of 8.5 percentage point compared to the previous elections in 2013.

The populist-right party Alternative für Deutschland (AFD) reached 12.6% of the votes and has become the third largest party of Germany. Merkel however does not want to form a government with the AfD. Her current coalition partner SPD, which reached 20,5% of the votes, has stated to take place in the opposition and therefore the chancellor probably will form a coalition with the FDP and the Grünen. For now it is unknown if and if so when Merkel will realize a new coalition.

German economy on course

Meanwhile the German economy continues to grow at a steady pace. According to the German ministry of Economic affairs, the industrial production increased with 2.6% during August on a monthly basis. This would be the largest growth over the past six years. On an annual basis the growth was 4.7%, which is the largest increase since January 2014. Partly because of that the ministry decided early October to raise the growth expectations for the domestic economy. Where the growth expectations for 2017 where 1.6%, this is now been adjusted to 1.9%. According to the ministry this is due to a higher consumer spending as well to company investments. The ministry expects that the German inflation comes at 1.8% in 2017 and 1.6% in 2018.

However, there are also some concerns about the German economy. The German economist Marcel Fratzscher for example claimed earlier this year in “Die Welt” that Germany may already be over its economic peak. In a recent interview with “Het Financieele Dagblad” Fratzscher also claimed that the gap between poor and rich in Germany has become larger. He is especially concerned about the next fifteen years. According to the economist Germany should invest less in industry and industrial production and more in communication, information and technology. It remains to be seen which plans the new government will present.

 

 

Important legal information

 

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

 

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

20/09/2019 05:35:26