Photographer: Ralph Orlowski/Bloomberg

DAX Is Closing in on Record High Faster Than Its Euro-Area Peers

  • German index advances last week toward record high set in 2015
  • Italy’s FTSE MIB needs to more than double to reach record

Germany’s DAX index has zoomed in on its record high in recent weeks and has room to power ahead as investors scoop up shares in industrial companies that will benefit from accelerating global economic growth.

The DAX, which has been outperforming most other euro-zone equity indexes this year, is about 3.5 percent -- or about 430 points -- shy of a record-high close of 12374.73 set in April 2015. This comes despite a retreat on Monday led by shares in Deutsche Bank AG, after it announced plans to raise about $8.5 billion in a share sale.

The gains make the DAX the European benchmark that’s closest to a personal best among the major gauges, after the U.K.’s FTSE 100 index climbed to an all-time high last week. 

Home to multinational companies such as Siemens AG, Daimler AG and BASF SE, the DAX has been one of the biggest beneficiaries of a global rally sparked in November by bets of stronger growth and inflation. It’s gained about 14 percent since the U.S. election, which boosted wagers of fiscal spending and corporate tax cuts.

The benchmark is also seen as a haven within the European equity markets in case of spikes of volatility in the run-up to the presidential election in France. Jefferies strategist Sean Darby said in a Feb. 28 note he’s bullish on German stocks, in part because higher inflation is making many alternatives unattractive, such as government bonds. “We continue to recommend selling bunds and buying the DAX,” he wrote.

While Germany’s export-led economy has benefited from a dovish monetary policy that has also bolstered its southern neighbors’ finances, the nation’s stocks have outperformed peers since the U.S. election in November fueled market expectations of faster inflation and higher interest rates.

JPMorgan strategist Mislav Matejka said in a note to clients that the global reflation trade still “has legs” and that Germany is among the main beneficiaries. The DAX has the most cyclical sector composition compared to peers, a net 30 percent more cyclical than defensive stocks, Matejka wrote.

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