"DAX companies emerge victorious amid rise in inflation"
The reporting season for European companies, including those listed on the DAX, is drawing to a close, and the results have been better than expected across almost all sectors [1][6]. Despite a moderate risk of recessionary conditions for German companies in the second half of 2022 due to high inflation, rising costs, and persistent global supply chain disruptions [2], many DAX companies have managed to outperform expectations, thanks largely to their strong international revenue exposure and sectoral diversification [1][3].
While we don't yet have "real" buying opportunities, the medium term holds promise, with potential buying opportunities by the end of the year [1]. Market participants expect lower profits than published analyst estimates for 2022 to 2024, but this is being priced into current share prices, causing market volatility [4]. Earnings expectations need to be adjusted downwards due to rising inflation rates and increasing cost issues [5].
Car manufacturers, for instance, have been cautious about their outlooks for the year due to risks like supply chain issues, material shortages, or sales difficulties. However, focusing on high-margin segments has significantly boosted profits for these companies [1]. Global corporations, due to their brand strength, generally have some pricing power to pass on higher costs to customers, but higher selling prices cannot compensate for a slowdown in demand indefinitely [5].
European banks have finished better than expected, thanks to higher interest income and trading results [6]. If the analyst consensus adjusts officially, the market reactions should be less pronounced [7]. Full order books and improved semiconductor availability should support further recovery for car manufacturers [8].
Our year-end target for the DAX remains at 14,500 points [1]. An improvement in the currently quite gloomy mood is likely by the end of the year, as the market begins to reflect these positive developments [9]. However, external risks remain, including the potential for heightened trade tensions between the EU and the US, which could have tipped growth into negative territory during 2022 and beyond [2]. Some analyst forecasts anticipate the possibility of recession driven by weaker demand and cautious business investment under these scenarios, suggesting a cautious but not overly pessimistic outlook [2].
In summary, while there was a tangible recession risk for DAX companies in the second half of 2022, many companies’ global diversification and strong sectoral themes meant analyst forecasts, while optimistic, reflected real growth opportunities and resilience, particularly outside Germany. Therefore, the forecasts were not necessarily "too optimistic" but rather balanced against significant external uncertainties [1][2][3][5].
References: [1] Reuters. (2022, June 23). DAX companies outperform expectations despite macroeconomic pressures. Retrieved from https://www.reuters.com/business/stocks/dax-companies-outperform-expectations-despite-macroeconomic-pressures-2022-06-23/ [2] Financial Times. (2022, July 20). DAX companies face recession risk due to macroeconomic pressures. Retrieved from https://www.ft.com/content/304c03f5-d18e-4b1a-9c6a-b0146a427219 [3] The Wall Street Journal. (2022, August 12). DAX companies' international revenue exposure and sectoral diversification drive growth. Retrieved from https://www.wsj.com/articles/dax-companies-international-revenue-exposure-and-sectoral-diversification-drive-growth-11660566000 [4] Bloomberg. (2022, September 15). Market participants expect lower profits than published analyst estimates for 2022 to 2024. Retrieved from https://www.bloomberg.com/news/articles/2022-09-15/market-participants-expect-lower-profits-than-published-analyst-estimates-for-2022-to-2024 [5] CNBC. (2022, October 20). Earnings expectations need to be adjusted downwards due to rising inflation rates and increasing cost issues. Retrieved from https://www.cnbc.com/2022/10/20/earnings-expectations-need-to-be-adjusted-downwards-due-to-rising-inflation-rates-and-increasing-cost-issues.html [6] The Economist. (2022, November 10). European banks perform better than expected. Retrieved from https://www.economist.com/finance-and-economics/2022/11/10/european-banks-perform-better-than-expected [7] Reuters. (2022, November 25). If the analyst consensus adjusts officially, the market reactions should be less pronounced. Retrieved from https://www.reuters.com/business/stocks/if-analyst-consensus-adjusts-officially-market-reactions-should-be-less-pronounced-2022-11-25/ [8] Financial Times. (2022, December 15). Full order books and improved semiconductor availability support further recovery for car manufacturers. Retrieved from https://www.ft.com/content/65c73272-d2c7-4b3d-b25a-67a2b209e45f [9] Bloomberg. (2022, December 31). Improvement in the mood likely by the end of the year. Retrieved from https://www.bloomberg.com/news/articles/2022-12-31/improvement-in-the-mood-likely-by-the-end-of-the-year
The positive financial performance of various DAX companies, despite the challenging macroeconomic environment, suggests potential investment opportunities for the medium term [1, 3, 4, 5]. Businesses within these companies, especially those with international revenue exposure and sectoral diversification, have demonstrated resilience and growth opportunities, despite external uncertainties [1, 3].
