Recently, the German stock market benchmark index GER40 broke through the 23,000 point mark for the first time, setting a record high. This milestone performance not only continued the strong growth trend of 19% in 2024, but also triggered the market's deep thinking on the logic of the German stock market's counter-trend rise. Although the German economy faces the challenges of high inflation, weak growth and even recession, the performance of the GER40 index is significantly different from the real economy. This article will analyze the driving factors behind it from multiple dimensions.
Technology and green economy drive: global competitiveness of leading companies
The core of the rise of the GER40 index lies in the explosive growth of technology and green energy companies among its constituent stocks. Taking SAP, the third largest technology giant in Europe by market value, as an example, its stock price rose by nearly 70% in 2024, contributing nearly 40% of the increase in the GER40 index. The company has attracted global investors to pursue the AI track by embedding artificial intelligence into the core business processes of enterprises. In addition, Siemens Energy has become an important force driving the index, with a year-to-date increase of 326% due to the surge in demand for renewable energy.
Green transformation is also a key driver. Germany's policy support and technological innovation in the field of renewable energy have continued to benefit related companies. For example, the stock prices of turbine manufacturers and new energy equipment suppliers have steadily risen, reflecting the global investment boom in carbon neutrality goals.
International income structure: weakening the impact of domestic economic weakness
The unique structure of the GER40 index constituents is the key to its risk resistance. About 75% of the revenue of GER40 comes from the international market, especially the global layout of the automotive, machinery manufacturing and technology industries. Even if the German domestic economy falls into negative growth in 2024 (GDP forecast downgraded to -0.2%), the recovery of global demand (such as the improvement of US economic data and the recovery of emerging markets) still supports the profit growth of enterprises. For example, the increase in overseas orders of traditional manufacturing giants such as BMW and Siemens offset the lack of domestic demand.
Loose monetary policy and expectations of interest rate cuts: liquidity pours into the stock market
The European Central Bank's loose policy provides ample liquidity for the stock market. Despite a sharp interest rate hike in 2023, market expectations for interest rate cuts by European and American central banks in 2024 have increased (the European Central Bank is expected to cut interest rates three times, cumulatively 0.75 percentage points). In a low-interest environment, investors are more inclined to shift funds from bonds to stocks, especially in the European market with lower valuations. In addition, the euro-dollar exchange rate fell from 1.11 to below 1.04, further boosting the competitiveness of German export-oriented companies.
Geopolitics and defense spending: structural dividend release
The prolongation of the Russian-Ukrainian conflict has prompted European countries to significantly increase their defense spending. German defense company Rheinmetall (up more than 115% this year) has become an important driving force for the GER40 index due to the surge in demand for equipment such as the Leopard 2 tank. At the same time, the German government plans to invest 100 billion euros in military modernization, and companies in the related industrial chain continue to benefit from policy dividends.
Low valuation and investor confidence: funds chase cost-effectiveness
Compared with US stocks, the valuation advantage of the German stock market is significant. The average price-to-earnings ratio of GER40 constituent stocks in 2024 is only 12.5 times, close to the low level during the 2008 financial crisis, while the valuations of US technology giants are generally high. This "high cost-effectiveness" has attracted international capital inflows. In addition, investors' confidence in the long-term resilience of the German economy (such as energy transformation investment and solid industrial foundation) also supports market sentiment.
Risks and challenges: hidden worries behind the carnival
Risk of constituent stock concentration: A few companies such as SAP have contributed too high an index increase. Once their performance fluctuates, it may cause a sharp market shock.
Economic recession drags down profits: If the German economy continues to shrink, the growth of corporate overseas revenue may be difficult to offset the pressure of rising local costs.
Uncertainty in monetary policy shift: If inflation rebounds or interest rate cuts are delayed, stock market liquidity may tighten.
Conclusion
The GER40 index broke through 23,000 points, which is not only a recognition of the competitiveness of German leading companies by global capital, but also a structural opportunity under a special economic environment. However, we still need to be vigilant about risks behind the market carnival. In the future, the continuous breakthroughs in technological innovation, the deepening of green transformation, and the coordination of policies and global demand will be the key to whether GER40 can maintain its "bullish trend". For investors, while pursuing high growth, they need to pay more attention to the global layout and anti-cyclical capabilities of enterprises in order to capture long-term value in fluctuations.
*Disclaimer: The content of this article is for learning only, does not represent the official position of VSTAR, and cannot be used as investment advice.
