One year ago, Germany’s DAX index bottomed. Back then, optimism about German growth had been falling sharply, illustrated by the ZEW survey. A few months later, the DAX rebounded in tandem with a bounce in this survey. This summer, the ZEW figures have again fallen as investor optimism diminished.
However, history could repeat itself in the coming months with a renewal of optimism. We expect a stabilisation in the Chinese growth outlook but German domestic demand, which is far more significant for the economy than exports to China, should support German economic expectations regardless of Chinese demand. Given our expectation that German growth will be close to 2% next year, investors should watch the ZEW survey for signs of an attractive entry point for DAX-listed equities, which appear to have already priced in recent concerns. The other major German survey from the IFO suggests that a pick-up in the ZEW survey may be just around the corner.