DAX is one of the most bullish index in the world right now. (Kospi is another one.)
The index being in thick of Europe woes is making new 2 year highs and has recovered nearly 70% of the fall.
And all this when the Europe's currency worries are topic of every fortnight at least.
So lets dissect whats behind this particular index which is powering it to new highs.
Lets start by analyzing the German economy. The exports account for 1/3rd of the total national output with the country being the second largest exporter last year. Facts from wikipedia.
Now if we look that exports being so high of the output then lets see if the exporting sectors growing.
The main sectors that have Industrials and Consumer Durables both of which are export sectors.
These sectors constitute about 40% of the index.
The main items being exported are automobiles, machinery which are needed throughout of the world when the world GDP is growing.
Thats one piece of puzzle.
Now comes the best part. While everyone is shorting Euro on rise it makes DAX move up. Why????
Simple rule this weakens their currency and exporters get the benefit form this. wow....
Next thing is that financials just form 15% of the index so very less of the subprime effect here.
Going further there is falling unemployment. How come?
Well the exports are rising and the factories require people. Its not China that they have oversupply of workers.
So the people now consume more and that powers the economy.
So we have a rising index with the help of exports which benefits from falling currency and inturn raises domestic consumption without much of the financial leverage as evident in West.
Its that simple.
If we look at other countries which closely resembles this model are South Korea and Taiwan. Well check those indices.
The index being in thick of Europe woes is making new 2 year highs and has recovered nearly 70% of the fall.
And all this when the Europe's currency worries are topic of every fortnight at least.
So lets dissect whats behind this particular index which is powering it to new highs.
Lets start by analyzing the German economy. The exports account for 1/3rd of the total national output with the country being the second largest exporter last year. Facts from wikipedia.
Now if we look that exports being so high of the output then lets see if the exporting sectors growing.
The main sectors that have Industrials and Consumer Durables both of which are export sectors.
These sectors constitute about 40% of the index.
The main items being exported are automobiles, machinery which are needed throughout of the world when the world GDP is growing.
Thats one piece of puzzle.
Now comes the best part. While everyone is shorting Euro on rise it makes DAX move up. Why????
Simple rule this weakens their currency and exporters get the benefit form this. wow....
Next thing is that financials just form 15% of the index so very less of the subprime effect here.
Going further there is falling unemployment. How come?
Well the exports are rising and the factories require people. Its not China that they have oversupply of workers.
So the people now consume more and that powers the economy.
So we have a rising index with the help of exports which benefits from falling currency and inturn raises domestic consumption without much of the financial leverage as evident in West.
Its that simple.
If we look at other countries which closely resembles this model are South Korea and Taiwan. Well check those indices.
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