German stock markets continue to record one after another as the nation approaches federal elections on February 23, fuelling political expectations, strong corporate profits and hopes for peace negotiations in the Russian-Ukraine conflict. It’s achieved.
The heavy weight market composition for industrial and high-tech companies also positions it well in the current global investment environment, and the relative undervaluation of European stocks compared to the US market adds to their appeal. It’s strengthened. The Morningstar German Index hit a 19-year-old record high in just 34 trading days so far this year, surpassing both European colleagues and the US market, up almost 14%.
The main focus is on rising government spending
“The market is currently priced the best possible outcomes of elections,” Fidelity’s capital market strategist Carsten Roemheld said in a webinar on February 18th that many are foreign investors. Friedrich Merz and his CDU party, now leading the polls, is a constitutional law that quickly forms reforms such as loosening the coalition and loosening the “debt brake” and limits the federal structural deficit. 0.35% of GDP.
The measures introduced during the 2009 global financial crisis were aimed at preventing excessive government borrowing. Amending this constitutional law raises challenges as it requires a two-thirds majority in both parliamentary rooms. It is difficult to achieve given the fragmented political landscape of Germany and the growing influence of populist parties. Such a vote will depend on whether one or two small parties, including those strictly opposed to the growing fiscal deficit, will gather enough votes to enter Congress.
“Without the loosening of the German fiscal strait jacket engraved in the constitution, Meltz would find it difficult to persuade his potential Central Left Union partner to agree to serious growth-promoting reforms.” Furthermore, February 17th. “In addition, he is simultaneously burdened with businesses and households whose tax and electricity bills have been significantly reduced, which will lack the financial space to increase public investment and mitigate military spending while easing. ”
Relaxing the debt brakes will lead to increased government spending on infrastructure, defense and digitalisation, providing much needed boosts to sectors such as the economy, construction, technology and finance.
The CDU votes about 30-32% of its votes in the final week before the election, with its preferred coalition partner SPD and/or greens at around 14-17% and 12-14%, respectively. The market assumes that right-wing AFDs are excluded from power.
Stock market records are in the backdrop of recession
The German stock rally comes against the backdrop of sour economic sentiment as Europe’s biggest economy enters its third year of stagnation and delays its European neighbors with economic outlook. Germany has been in a recession for the past two years, with GDP growth forecast to stagnate at just 0.3% in 2025, according to the country’s economy ministry.
Spain – an eurozone economic outperformer who recorded a 3.2% growth in 2024 – is nearly two seconds of stock performance.
German companies have faced many shocks in recent years that have been hampering business and growth. Covid Pandemic has caused widespread supply chain disruption, labor shortages and economic slowdowns. This was followed by the energy crisis caused by the Russian-Ukraine War, which had an impact on the rising energy prices, particularly the German industrial sector. Furthermore, supply shocks from China, inflation pressures and rising interest rates are even more tense, but ongoing geopolitical tensions and trade uncertainties, including the threat of US tariffs under Trump’s new administration. Added to the economic challenges.
Automobiles and manufacturing industries are particularly under the threat of tariffs, and businesses are rushing to adapt their supply chains to mitigate potential disruptions. While investors have largely reduced these concerns up until now, escalation of trade tensions could introduce volatility into the market.
“The 40 German DAX companies generate 80% of non-German revenues and about 24% in the US,” said Sören Hettler, head of investment strategy DZ Research, in an interview with MoningStar. Masu. This is comparable to less than 20% of the revenues the companies have generated in the German home market.
In a research notes on February 17, an analyst at German Bank Deka said that local stock market performance owes to a robust global economy. year. In contrast, investors waiting for interest rate cuts from the US Federal Reserve in the coming months may be disappointed. According to Morningstar European market strategist Michael Field, the expansion of the eurozone and US rates could also provide tails for European stocks.
These stocks are driving German stock gatherings
Outperformance in the German stock market is not extensive. Companies like SAP Sap The Software Titan has seen its share price surge by 70% over the last 12 months, accounting for more than 9% of the Morningstar German Index’s 30% profit over that period, so the Software Titan has seen its share price jump by 70% Because of this, we have been committed to pushing the market to the best record.
Siemens she And German Telecom dte MorningStar Direct data also showed significant returns, contributing to index profits of 3.7% and 3.3% over the past 12 months, respectively. Siemens has experienced strong corporate revenues driven by global demand for electrification and industry delivery. Deutsche Telekom will also perform well in 2024, with plans to accelerate growth through advances in artificial intelligence and data-driven business models. Aerospace and defense company Rheinmetall rhm It won over 9% this week alone, mainly due to the expected increase in defence spending across Europe.
Care is paid to good performance. Three of these stocks are trading in overvalued territory, and according to estimates from Morning Star Fair Value, the three are well valued.
Investment opportunities in German stocks
“The German stocks that performed strongly in 2024 have been screened to be highly valued and traded at least once on a price/fair value estimate basis. However, although not currently in the overall low price, It’s not expensive either,” Morningstar Field said. Of the 49 German stocks in Morning Star Coverage, 24 are traded in undervalued territory. “We see many stock opportunities where cars are the most attractive area.”
According to Morningstar equity analyst Lera Suskin, German automobile production is under-poor government policies, reducing competitiveness and driving investment overseas. Future elections provide opportunities for change where political parties are committed to increasing the competitiveness of the industry.
However, the expected coalition government could undermine these policies. “Without a focused strategic framework to promote cost competitiveness in Germany, the original equipment manufacturers will continue to direct investment overseas, which balances the need and balance to maintain a highly integrated German headquarters. This will continue to be measured in return,” warns Suskin.
Major European and US market assessments
Market Price/Fair Value
Italy 1.07
US 1.03
Spain 1.02
Germany 1.02
France 0.98
UK 0.93
Domestic politics are more important for small and medium caps
valuation-conscious investors can also rely on intermediate and small stocks, seeking opportunities in regions that don’t see the same growth as large stocks. Many of these companies are directly exposed to the German and European economies, making them more vulnerable to domestic policy changes and macroeconomic fluctuations. Their performance is mixed, with some benefiting from sector-specific trends such as digitalization, while others have also suffered from sustained economic stagnation. According to DZ Bank’s Sörenehettler, intermediate companies derive about 55% of their revenues from Europe. This includes a significant portion of 24% from Germany, making it more sensitive to local economic and political conditions.
In particular, mid- and small businesses exposed to domestic economic policies are looking for post-election clarity and stability. “A new government committed to reducing bureaucracy and increasing investment in key areas could boost investors’ confidence and promote further capital. Inflows into the German market.”
How will the German election affect the bond market?
Speculation about easing the debt brake helped boost the band’s yields after the sudden end of the German Union government on November 6th. Increased spending means Berlin has to issue more bonds, increase supply and push bond prices down.
Furthermore, Ukraine’s peace outlook promoted higher yields after soaking in late January to early February. “The financial markets focus not only on positive growth outlook, but also on the costs of securing and reconstructing Ukraine in the future,” Deka said in a research note on February 17th that the US and Russia have cited Ukraine. He wrote in the news that peace negotiations will begin. “Europe needs to play an important role in financing these efforts. This burden places emphasis on the bond market, particularly promoting yields on the German government’s bonds.”
