The German DAX index is setting all-time highs. The rally has lasted for three years. The DAX index's growth rate is 20.3% in 2023, 18.8% in 2024, and currently 19.9% this year. Park Sang-hyun, a researcher at iM Securities, identified six driving forces behind the rise in the German stock market on the 27th.
First, the European Central Bank (ECB) has initiated interest rate cuts since June of last year, resulting in a drop of 1.75 percentage points in the benchmark interest rate. The likelihood of further cuts is high. Consequently, ① liquidity has increased. ② Prices are stable. The consumer price inflation rate in Germany was 2.1% as of April. Expected inflation is also on a downward trend.
③ The new German government has implemented a fiscal stimulus centered on increased defense expenditure. This has supported economic sentiment. Nevertheless, ④ the Government Bonds market remains stable. The German government's debt level is at 64% of Gross Domestic Product (GDP), which is lower compared to other advanced countries. The German Purchasing Managers' Index (PMI) is also steadily rising, indicating ⑤ a recovery trend in the economy.
⑥ Funds that have left the United States have chosen Germany and Europe as their refuge. Following the tariff policy of the Donald Trump administration, a dramatic rise in U.S. Treasury yields and a weakening of the dollar have triggered the so-called "Sell USA" phenomenon, while Germany has demonstrated a stable trend.
Researcher Park noted that the relative strength of the German stock market is expected to continue for the time being. He said, "Until the uncertainties of the Trump administration's tariff policy are completely resolved and U.S. Treasury yields stabilize downward, global funds will prefer Germany and Europe."
There is also the possibility of further interest rate cuts by the ECB. The high probability that President Trump will accept the increased defense budget at the NATO (NATO) summit scheduled for June 24-25 is another factor raising expectations for expanded fiscal expenditure.
However, it is important to keep in mind that the rise in the stock market has outpaced the speed of Germany's economic recovery. Researcher Park stated, "If the U.S. economy overcomes the tariff crisis under Trump, the phenomenon of 'Buy USA' will strengthen."