Forget the burgeoning recession, German stocks are on fire.
Thanks to optimism around trade and the concurrent pro-risk rotation across assets, the DAX is now the most overbought since May.
Trade-sensitive German shares are on track for a fifth consecutive weekly gain and are within shouting distance of the record high hit in January 2018.
Not surprisingly, carmakers have led gains. Daimler, Volkswagen and BMW have rallied sharply in November on the heels of big gains last month.
That contrasts with big losses logged in August and May, when trade tensions were front and center after Trump broke the Osaka and Buenos Aires truces.
Notably, the DAX is outperforming the Stoxx 600 in 2019. German equities are gunning for a 25% gain for the year. That would be the best performance since 2013.
This, even as the world’s fourth-largest economy is almost surely in recession. The manufacturing PMI bounced a bit in the final print for October, but it’s still a disaster.
As noted on Monday, readers should do themselves a favor and not be tempted to join the chorus of armchair economists peddling the patently ridiculous notion that Germany should just sit on its hands in order to safeguard its budget bragging rights. Have a look at this
There is, in fact, room for stimulus even within Germany’s existing fiscal framework. For instance, Goldman in September presented a four-point rationale involving reserves set aside for special purposes outside of the main budget, the running down to zero of projected state and local government surpluses, the leeway built into the debt brake that permits small deficits and the “natural disasters/emergencies” provision.
In short, Berlin needs to step in. It’s too late to avoid a technical recession, but even a small fiscal push could avert a deeper downturn.
Then again, who needs an economy, when you’ve got record high stock prices, right?
Speaking of that, the Hang Seng is up more than 10% off the lows hit in August. Hong Kong shares are now the most overbought since April, and have risen in four of the past five weeks.
That, against an economic backdrop that is absolutely horrendous. Thanks to months of unrest, the city’s economy plunged into recession in the third quarter, logging a contraction that was much worse than expected.
Who knows, maybe the disconnect will correct itself by growth inflecting for the better as trade tensions abate and, in Hong Kong’s case, protests eventually lose momentum.
But right now, the disparity seems glaring.