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The DAX's remarkable resilience

Nobody told the DAX, it seems, about the current doom and gloom surrounding the European economy.

Perceived weakness and slow growth throughout the eurozone, the imminent threat of a 'Grexit', looming worries over Britain's EU membership and several significant unanswered questions from Ukraine have all failed tostop investors from pushing Germany's key index to record levels. On February 13 – a Friday that didn't appear unlucky for German investors, at least – the Dax popped above the 11,000 points barrier. As IG's Chris Beauchamp put it, 'reports of the death of the eurozone economy have been greatly exaggerated.'

This, just eight months after the DAX breached its last milestone, reaching 10,000 for the first time back in July. For reference, the FTSE 100's current landmark level, 6,900, was first hit back in 1999. The jury is still out on when it might surpass 7,000: and has been for over 15 years.

It stands up pretty well to other indices as well, eventhose that don't have as much of a problem breaking records. Both the Dow Jones and the S&P 500 have spent much of 2015 trading at, or around, record-breaking levels. For the Dow Jones, that means hitting the 18,000 level first broken at the end of last year – like the DAX, it breached the previous landmark of 17,000 back in July. For the S&P 500, it means testing a newrecord of 2100.

Compare their growth in 2015 to that of the DAX, though, and they pale in insignificance. From the beginning of the year to February 13, theDAX grew an impressive 13%. In the same time, the Dow grew just 0.7% and the S&P 1.3%, as a largely disappointing earnings season weighed down on index performance.

Even over longer periods, the DAX still compares favourably to its US rivals. From the beginning of 2014 to February 13, over a period ofseemingly weak growth for the Eurozone, the DAX narrowly beat out both the Dowand the S&P in terms of growth.

Why the strong growth? In mid-February, investors were hopeful that the much-dreaded Grexit would not materialise, as headway was being made for a deal on how to deal with Greece's debt issues – and that wasundoubtedly a huge boost for the DAX.

But even the victory for Syriza, the party that has brought probing questions about the future of the euro to markets, on January 25 failed to deal too much damage to Germany's index. While it did cause a drop of some100 points as the news hit the markets, the DAX quickly recovered and by the end of the next day was some 300 points higher.

Hintsof an end to the Ukraine conflict will also have given the bulls a reasonto start buying. But once again, the ongoing fighting in Ukraine failed to seriously hinder growth for the DAX. Its current run to prominence began inOctober (though it did stall in December, as German economic figures caused concern): when peace in Ukraine looked all but likely anytime soon.

Investors, it seems, are far happier finding solace in anyrespite from the bad news rocking Europe than running scared from what it may portent.

That may be why they are happy to be paying a fair amount more for the DAX in February than what they were back at its previous high inJuly. Back then, the DAX had a price to earnings ratio (P/E) of 18.67 on a value of 10,050. Now,it's P/E has risen 16.2% even as its price has risen just 9.4%.

All of which points to an index that's price is risingfaster than the value of the companies in it. While not always a bad thing, itdoes mean that investors are expecting German companies to continue growing inorder to fulfil their potential.

So far, the resilience of the DAX has shown that Germanbusiness has the ability to thrive in some pretty harsh conditions. Over thecoming months, that ability may well be tested many more times – those investors who have piled into the DAX will be hoping that it doesn't come upshort.


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