Why does it rise so fast when its economy shuts down?

Stock market, markets and quotes

• Goldman Sachs believes that the ‘fashion sectors’ are strongly represented
• The EU forecasts a contraction of 0.4% in its economy
• The German stock market is one of the strongest in Europe this year (12.48%)

Germany is headed for recession. This is the conclusion reached by the estimates planned this Monday by the European Commission. According to the report, the macroeconomic challenges that facing the country that will lead to a reduction of 0.4% of its economy in 2023. This is but the latest of the warnings that the ‘locomotive of Europe’ launched in recent months and, however, the Frankfurt stock exchange Not only does it ignore pessimism, but it rises with excitement, a situation that analysts describe as a true mystery.

The Dax 40, the main index of the Germanic country, has recorded a revaluation of 12.48% so far this year. This performance is better than France (up 10.27%), the British (down 0.95%) and the pan-European selection, the EuroStoxx 50 (up 10.24%). All this is the country with the worst forecasts for 2023, because it is the only one of the major countries where an economy is predicted. In fact, growth of 0.8% is expected for the Eurozone as a whole.

In its latest report, Goldman Sachs claims that they have a solution to this ‘mystery’. Experts in the North American bank defend that it is not the equities that ignore the macroeconomic perspectives, but that what happened is due to the representation of different sectors of the most important selected in the country.

One of the examples they give in this sense is the important representation of the technology and car sectors, which together account for close to half of the Dax 40. These sectors gathered a revaluation of 10% and 20% each, so Therefore, they will clearly promote the chosen despite the bad forecasts for their economy.

she The main problem that afflicts the “European locomotive” is energy. Russia’s cheap gas has been one of the key elements for the profitability of its industrial fabric and the war in Ukraine has changed everything. In an industry damaged by higher energy prices, we must add China to a disappointing opening. A significant factor since it exports products worth around 113,000 million in 2022 and more than 120,000 million in 2022 to Asian countries. Domestic demand also weakened.

All these factors affect the cyclical values ​​of selected stocks to a lesser extent. According to Goldman Sachs, “earnings per share (EPS) were revised upward for cyclicals and downward for defensive ones, which helped the DAX.” In addition, defensive sectors such as technology and basic resources have little reflection in the daily prices of the Frankfurt stock exchange.

This, added to European gas prices that have fallen this year, means for Goldman Sachs that equity gains will continue in the latter part of the year. “Our analysts at Equity Research suggest a 28% increase in the DAX and 22% in the MDAX compared to 23% for the STOXX 600.”