DAX posts strong annual gain - "Reality check in January"
Crisis year? Not for DAX investors. The German stock market barometer is up a good fifth this year. The numerous geopolitical upheavals are overshadowed by the end of the interest rate hikes.
It has turned out to be a good year for investors after all. The German stock market closed up on the last day of trading. At 16,752 points, the leading index DAX came to a halt, having recently already peeked over the 17,000 mark. Since the beginning of the year, this represents a rise of more than 20 percent. At the same time, the dip from the previous year has been more than made up for. In the second tier, however, the MDAX only managed an increase of 8%, while the SDAX gained 17%. The TecDAX rose by 14.2 percent. It is the exception rather than the rule for second-tier indices to underperform the DAX. This could open up opportunities for 2024.
"All in all, we can say that things took a turn for the better in 2023: Inflation fell and there was no recession," explained the investment experts from asset manager Eurizon. The real surprise was the resilience of economic growth, particularly in the US.
However, experts urged caution with regard to January. "As soon as everyone comes back from vacation in the new year, there will be a reality check for the year-end rally on the stock market," said Thomas Altmann, portfolio manager at asset manager QC Partners. "We will then have to see how much risk stock market players are prepared to take at the start of the year. And whether they are really prepared to invest larger sums at the current price levels." The high expectations of investors regarding interest rate cuts held a lot of potential for disappointment, said Takehiko Masuzawa from the broker Phillip Securities in Japan.
Despite high energy costs and political headwinds, German companies managed to generate solid profits. However, the main driver of share prices was interest rates - especially in the last quarter of the year. After yields on the bond markets rose to multi-year highs in October, they then fell rapidly. At the end of the year, for example, they were at 2.0% in the ten-year range in Germany and significantly higher in the USA at 3.88%. At their respective highs in October, bonds had yielded just under 3 and just under 5 percent.
After six interest rate hikes in 2023, falling inflation rates had paved the way for the European Central Bank (ECB) to pursue a less restrictive interest rate policy in 2024. The associated speculation that key interest rates would fall significantly in the coming year put pressure on market interest rates and gave the stock market a year-end rally. Geopolitics, on the other hand, with Russia's ongoing war of aggression in Ukraine and the terrorist attack on Israel, ultimately had no impact and only caused temporary disruption on the stock market.
Heavyweights pull index upwards
The DAX benefited from the strength of its heavyweights: SAP (44.7 percent), Siemens (31.7 percent) and Airbus (25.8 percent) outperformed the index, in some cases significantly. Although Siemens is trading close to a record high, analysts see further potential with price targets of around 200 euros, also because the share is inexpensive compared to its European competitors.
Read the events of the trading day here
Rheinmetall and Heidelberg Materials shares rose by more than 50 percent, making them the top performers. Covestro ended 2023 with a gain of 44.1 percent. The share price was driven by reports of takeover interest from the Abu Dhabi National Oil Company (Adnoc), whereupon Covestro confirmed that it was in open-ended talks. A takeover price of up to EUR 60 per share was recently reported.
Twelve stocks buck the trend
Despite the good DAX annual results, 12 of the 40 DAX stocks closed the year in the red. Bayer, for example, bucked the trend, losing around 30 percent in value, still burdened by litigation risks resulting from the Monsanto takeover in 2018. Although verdicts relating to alleged cancer as a result of the weedkiller glyphosate developed by Monsanto are sometimes favorable for Bayer, this is by no means always the case.
In November, there was also news of the discontinuation of a study for the important drug candidate asundexiane due to a lack of efficacy. The anticoagulant had been seen as a potential successor to the drug Xarelto. Bayer's share price plummeted by around 20 percent on the news and has only recovered slightly since then.
The weakest DAX stocks in 2023 were Zalando (down 35 percent) and Siemens Energy (down 31.7 percent). The Zalando share suffered in particular from high inflation, which made consumers reluctant to spend. Siemens Energy, on the other hand, repeatedly issued warnings due to problems at its Spanish wind energy subsidiary Gamesa. When the company asked the state for help in October, the share price plummeted by up to 40 percent in just one day. In reality, however, Siemens Energy only asked for state guarantees to raise funds in order to be able to process the overflowing orders and major projects. With the promise of state guarantees and also guarantees from banks as well as help from the parent company Siemens, the share price recovered within three weeks, at least from this setback.
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Investors have seen significant gains in the DAX this year, with the index closing at 16,752 points on the last trading day, representing a rise of over 20%. One of the main drivers of this increase was the decline in interest rates following six rate hikes over the year. (Share prices)
Despite challenges such as high energy costs and political headwinds, German companies like SAP, Siemens, and Airbus saw strong share price growth, with Siemens reaching close to a record high. (DAX, Share prices)
Source: www.ntv.de
