DAX Shows Signs of Recovery Ahead of Tariffs, Funds see Net In-Flows
German stocks rallied yesterday as the markets took short profits, while data from Blackrock shows net in-flow to EU stocks in Q1.
- DAX rallies after 6.4% decline
- US investors place $10.6 billion in European ETFs
- 3 out of the last 5 years showed net outflows
The DAX rallied almost 1% yesterday after the index lost 6.40% from its peak of 23,480 on March 18.
Reciprocal Tariffs Main Concern
The German caretaker government has pledged a massive spending bill that looks to put nearly €1 trillion into the economy.
The infrastructure fund is set to finance €500 billion in spending over the next 12 years. While the new defense spending rule could take military spending up to €500 billion over the next 5 years.
Global stock markets, however, have been concerned with the tariffs announced by Trump. The reciprocal tariffs are seen as a risk to growth and inflation, and the DAX has seen valuations decline.
There has also been a lot of talk by EU officials to take action on the incoming tariffs. Sparking concerns that the trade tariffs may escalate into a tariff war.
DAX Live Chart
ETFs See Massive Inflow into European Funds
The DAX has benefitted from foreign inflows into European stock for the first quarter of 2025. Data from Blackrock shows European ETFs saw net in-flows of $10.6 billion in Q1.
The number is 7 times the allocations seen to European ETFs for 2024. The renewed interest in European stocks doesn’t mean US investors are dumping domestic stocks.
The interest stems from the lower valuations of European companies compared to their peers in the US. Large investment banks, such as Citi, Goldman Sachs, and Morgan Stanley, have made bullish calls for European stocks.
Citi and Goldman Sachs gave bullish recommendations as early as October 2024. Both citied attractive valuations for the European market.
What remains to be seen is whether European companies can also follow through with increased profits.
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