LIVE MARKETS-German equities' current pricing overly optimistic - BofA
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GERMAN EQUITIES' CURRENT PRICING OVERLY OPTIMISTIC - BOFA
German equities' stellar outperformance versus the rest of Europe in 2025 may be coming to an end according to BofA, who say the cyclical nature of the German market leaves it vulnerable to underperformance as global growth slows.
Frankfurt's DAX .GDAXI is at a record high. It is up 21.9% this year versus an 8.7% rise in the STOXX 600, pushed higher by the country's promised infrastructure and defence spending boost.
BofA also flags an increased importance of single stocks in Germany's index, particularly software giant SAP SAPG.DE, up 52% in the past year.
"Together, German capital goods and SAP explain two-thirds of Germany's relative performance since last August," they write.
In fact, Germany's relative performance excluding German capital goods and SAP is in line with the typical macro drivers like global growth and rates.
BofA remains underweight Germany as they see the current pricing as overly optimistic.
Firstly, pricing is already discounting a highly positive German growth scenario, but BofA's economists see a mild contraction in German GDP growth over the coming quarters, with large-scale fiscal stimulus unlikely to have an impact until H2 2026.
Next they expect global growth momentum to soften and - given German equities high share of foreign earnings - that spells underperformance.
Thirdly, they are underweight capital goods, the key sector driver behind Germany's recent strength.
"The sector's price relative has pushed to new all-time highs and is effectively priced for a further decline."
(Lucy Raitano)
FRIDAY'S OTHER LIVE MARKETS POSTS:
CLOCK TICKS DOWN TO US NON-FARM PAYROLLS CLICK HERE
EUROPEAN INSURERS OUTPERFORM IN 2025 AS LIFE INSURANCE MAKES COMEBACK CLICK HERE
STOXX STEADY, HEADS FOR SMALL WEEKLY RISE CLICK HERE
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