GERMANS ARE a brooding bunch. After all, their language gave the world “angst”. After five years of trouble some may even be feeling a sense of Niedergeschlagenheit (literally, beaten-downness). Covid-19 was followed in 2022 by war in Ukraine, soaring energy prices and cooling Chinese demand for German wares. Europe’s biggest economy last grew year on year in the first quarter of 2023—and then only by a downbeat 0.2%.
Now Donald Trump may end up drawing down the American troops who have guaranteed German security for 80 years and slapping tariffs on the country’s exports. An election held on February 23rd will probably result in a centrist coalition taking power under the leadership of the conservative Friedrich Merz. But German voters have handed parties on the far left and far right enough seats in the Bundestag to block the constitutional reforms necessary to unshackle spending on defence and other much-needed public investments.
Amid this gloom one group has been feeling the opposite of niedergeschlagen: investors in German blue-chip companies. The DAX 40 index, which tracks the bluest of them, is up by nearly half over the past two years. Across the Atlantic, the Dow Jones Industrial Average has risen by just a third in that period.
The divergence between Germany’s economy and its big businesses is not that mysterious. DAX companies generate around 80% of their revenues abroad, including 24% in go-getting America. More intriguing in a country renowned for its engineers is the source of the DAX’s rise. Forget industrial giants like BMW and BASF. From Adidas and Allianz to Zalando, the beaming new face of Deutschland AG is its service and consumer firms.
A decade ago the DAX was dominated by makers of things that roll or spill over your foot. Car and chemicals firms made up 30% of the index by value. Today their combined share is down to around 10%. Technology, telecoms and finance represent nearly half, up from less than a third. SAP, a business-software firm with a market value of $350bn, is worth more than half as much again as Mercedes-Benz, Porsche, BMW and Volkswagen put together. Only one of the five biggest firms in the DAX, Siemens, represents Germany’s old-school industrial strengths. And even that engineering giant derives a good chunk of its revenue from services.
To be sure, the string of calamities that has beset Germany since 2020 has been particularly disastrous for its industrial champions. Their energy-intensive products became costlier to make after Russia tightened the natural-gas taps in response to European sanctions over its assault on Ukraine. The slowing Chinese economy needs fewer of their capital goods, and electrically inclined Chinese motorists want fewer of their internal combustion engines. Pedlars of more intangible wares are less exposed to these headwinds, whether they provide software (SAP), telephony (Deutsche Telekom), insurance policies (Allianz and Munich Re), loans (Deutsche Bank and Commerzbank), e-commerce (Zalando) or three-striped street cred (Adidas).
Yet heavy industry’s relative decline is only part of the story. For the new stars of Germany’s corporate firmament have outshone not just their old-economy rivals at home but also direct competitors abroad. SAP is now worth more than Salesforce, an American business-software titan, and is closing in on Oracle, another Silicon Valley rival. The share price of Deutsche Bank has risen twice as much since early 2020 as that of JPMorgan Chase, America’s biggest bank, and Commerzbank’s nearly three times as much. In terms of value creation, Adidas is running rings around Nike. Deutsche Telekom has generated greater returns for investors in the past two years than any other firm in its sector, including the most valuable, T-Mobile, an American giant it majority-owns. On February 26th the German firm announced a record dividend after reporting strong annual results.
Some of this is a bounce off a low floor. Earlier this century Deutsche Bank first tried too hard to become a global banking powerhouse and then lived through years of negative interest rates at home that made it hard for German lenders to make money. By early 2020 its share price had plummeted by more than 90% from its peak in 2007. The firm’s recent run of good fortune has a lot to do with the fact that it “is no longer crap”, sums up one analyst. SAP, too, was falling behind its American rivals, especially in cloud computing, until Christian Klein, its CEO, orchestrated a bold turnaround in late 2020. That initially caused a sell-off that wiped $40bn from its market value in a day. Yet it was necessary to ensure future growth, recalls Sebastian Steinhaeuser, who was then Mr Klein’s chief of staff and is now chief operating officer.
Trump und Drang
Mr Trump’s antagonistic stance towards Europe may force more German corporate reinvention. “Germany needed to be kicked out of its funk,” observes a DAX executive. And the Trump doctrine is a right kick in the backside.
Investors seem to be concluding as much. If Trumpism is meant to be a blessing for America’s stockmarket, it looks like a godsend for Germany’s. Since the American election in November, which coincided with the collapse of the centre-left coalition in Berlin that triggered last week’s poll, the DAX is up by 20%. It has handily outperformed not just the Dow, whose equal weighting of constituents can conceal the surging values of multitrillion-dollar tech titans like Apple, Microsoft and Nvidia, but also the S&P 500, which accounts for market capitalisation.
The mood has rubbed off on Germany’s industrial stragglers. Volkswagen’s share price has also risen by 20% since November. Rheinmetall, an armsmaker, has almost doubled in value. Still, it will be a while before they eclipse Germany’s new service stars. ■
Correction (February 28th 2025): The original version of this piece wrongly referred to the DAX 30 index.
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