Germany’s blue-chip DAX index comprising the country’s 40 largest quoted companies made a new intraday all-time high of 16,333 points on 19 May after it breached the prior high of 16,290 points set in November 2021.

That makes the DAX the second-best European performer in 2023 with total gains of 17.2%, slightly behind the French CAC index which is up 18% but way ahead of the FTSE 100 which is up a paltry 6%.

The comparison isn’t quite apples-to-apples though because the DAX is one of a few total return indices which means it is calculated to include dividend payments.

The number of DAX constituents was increased to 40 from 30 in September 2021. The maximum individual company weighting is capped at 10%.

WHAT’S BEEN LEADING THE DAX HIGHER?

Engineering and technology stalwart Siemens (SIE:ETR) is up 22% so far in 2023 and 37% over the past 12 months. Last week (17 May) the company increased sales and profit guidance for the year
to 30 September having already raised its outlook in February.

Sales growth was increased to 9% to 11% from 7% to 10% while earnings per share was increased by 6.5% to €9.75 in the middle of the range.

Airline Deutsche Lufthansa (LHA:ETR) is up 25% in 2023 and 42% over the last 12 months. Analysts have increased their earnings estimates by 80% since December 2022 on pent-up demand in
air travel.

In early May rival Ryanair (RYAAY:NASDAQ) won its legal challenge against Lufthansa’s 2020 state bailout.

STELLAR EUROPEAN EARNINGS

Few people would have predicted European stock markets to be so buoyant a year after the invasion of Ukraine, skyrocketing energy prices and the ECB (European Central Bank) aggressively raising interest rates.

But with energy prices now well below their peak and China reopening following the abandonment of its zero-Covid policy, the future looks a fair bit brighter.

Positive investor sentiment seems to have been driven in part by an impressive first quarter reporting season. Morgan Stanley’s equity strategist Graham Secker calculates it is the fourth best European earnings beat over the last 15 years.

A net 36% of companies have beaten consensus expectations by a weighted average of 13.4% at the index level with large cap names leading the charge.

Despite the strong showing Secker warns the ‘stellar’ season is unlikely to be replicated as the broader macro data seems to be fading. He says said the macro weakness points to weaker earnings ahead.

Another worrying omen came out in the same week as the DAX made a new high. May’s ZEW index which measures investor sentiment unexpectedly fell into negative territory for the first time in five months.

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