Economic Situation & strategy
September 10, 2021

Share price targets raised despite growth dip

The DAX has been trading in a relatively narrow range between 15,400 and 16,000 index points since the beginning of May. Even the outstanding Q2 reporting did not take the DAX out of its rut in contrast to the S&P 500 and the EURO STOXX 50. This may be due to the fact that German economic forecasts had to be revised downward at the time but uncertainties ahead of Germany’s federal elections on 26 September could also have figured into this. Unless Germany’s new ruling coalition will be comprised of the social democrats (SPD), green party (die Grünen), and the socialist party (Linkspartei), there will probably be only marginal direct impact of the elec-tions on the DAX.

We believe that DAX earnings expectations inadequately reflect the favorable economic outlook. Although expected earnings growth for 2021 has been revised upwards from almost 25 to just short of 60 percent since the beginning of the year, the growth forecast for 2022 dropped from 16 to 4 percent. That would make the earnings growth forecast lower than he expected nominal economic growth. A comparison with earnings outlooks for other stock markets shows that corporate analysts looking at German stocks are exceedingly conservative.

Assuming that this low valuation is going to stand for the time being but that corporate earnings will increase next year not just by four but by ten percent, the year-end DAX target will be much higher than under our previous assumptions. Indeed, this would put the fair year-end DAX value rather at 17,000 index points than the previous value of 16.500 index points. We are also raising our previous price targets for the Euro Stoxx 50 and the Stoxx 50 as well as the S&P 500.