The German stock index — the DAX — is going from strength to strength, leaving equity-averse Germans wondering why. But there are clear reasons it is pushing into new territory, as DW’s Rolf Wenkel explains.
The record highs on Wall Street certainly helped the DAX reach its own new record — in late day trading on Thursday, Germany's leading index broke the 13,000 ceiling.
But as most Germans still tend to steer clear of equity markets, what could be driving this success?
According to the German Stock Institute (DAI), the number of domestic shareholders last year even fell, with just under nine million people holding shares or shares in equity funds — about 30,000 less than a year earlier.
Only every seventh citizen thus directly or indirectly buys shares.
One reason for this is the fact that banks only began to recommend private shares to shareholders, such as in the then booming telcoms sector, for the first time in the mid-1990s.
This was followed by a short period of euphoria, until a sharp sell-off and the collapse of the German equivalent of the Nasdaq, the "Neuer Markt," left many Germans suspicious.
One in three Germans consider the risk of investment in shares to be too high. And just under 62 percent say that security is the key investment criterion for them.
But pros outweigh cons
One of the main reasons behind the new high is that four out of five DAX shares are held by foreigners, the largest group being North Americans, which now holds 32.6 percent of DAX companies, and they tend to be more proactive.
Also, 61 percent of DAX shares are held by institutional investors: banks, insurance companies and investment funds. And these must generate returns, something not achieved by the negative yields on German bonds.
Furthermore, yields are low because the European Central Bank (ECB) is hoovering up all available bonds (as part of its quantitative easing program) and because the ECB's zero interest rate policy allows countries like Italy to refinance virtually without interest.
In other words, institutional investors need to invest in equities for a lack of real alternatives.
Looking into the crystal ball
Other factors also make it likely that the DAX will reach new highs in the coming months. Chief among them is that the International Monetary Fund and the OECD are correcting their growth forecasts for the global economy.
The oil price also appears to have no potential for long-term interference as long as OPEC does not significantly reduce supply.
Many investors had seen low demand for oil as an indication of a weakening of the economy. However, one can also argue that low oil and energy prices mean lower costs for many companies, which lifts profit margins and makes the shares of many companies more attractive.