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The German economy has looked a little wobbly over the last quarter, with the economic data far from convincing. That being said, markets have been categorically bullish and the DAX is now some 1300 points higher than at the start of the year – not bad for an economy that has borne the brunt of analysts’ expectations in terms of dragging the rest of the EU out of recession.
Germany has been better placed than most to benefit from the current situation. It’s an economy that has a backbone of manufacturing and export has benefited from its currency being dragged lower due to the weight of negativity surrounding some of the other EU members.
Today’s figures from Volkswagen highlight this beautifully, after third-quarter profit increased by almost 20% from €2.32 billion, up to €2.78 billion. Unsurprisingly, this improvement in the company’s operating profit was driven by sales of its luxury brands Audi and Porsche to south-east Asia and specifically China. Not only is there a healthy appetite for premium goods, but the advantage of the products being manufactured in a euro-denominated country, has helped the spending power of Asian customers.
So are we about to see the DAX top out? Well, as long as the strength of both the US and Chinese economies continue to hold, Germany's leading index should be able to handle the weakness of its European neighbours.