DAX stocks take unexpected tumble. Germany’s DAX index dropped by a startling 3.5% on Thursday. The index declined further on Friday, losing a further 0.21%. Furthermore, the DAX has declined by a total of 20% since January 23rd (when share prices reached an unprecedented high point).
The index is currently resting at 10,788.09 points. At the beginning of the year, the DAX looked abnormally successful. Now, it seems that this year’s annual performance will be its worst since the global financial crisis of 2008. But what has caused this extreme reversal of fortune? More importantly, how should traders respond? Should you invest in DAX stocks while they’re low, or steer clear of the index altogether?
The Trade War
The US/China trade war has had a noticeable impact on the DAX. The trade war has been affecting the global economy for months. Until recently, however, the markets were optimistic about the outcome. In fact, many traders believed that the end was in sight. However, political tensions have actually grown and the trade war is likely to get worse before it gets better. Naturally, this has had a negative impact on all major stock and share indices, including the DAX.
Companies In Decline
There are also internal reasons for the DAX’s decline in value. Many DAX companies have issued profit warnings recently, which indicated that they haven’t been performing adequately. If a company underperforms, the value of its shares inevitably drops.
Will The DAX Stay Down?
The trade war is likely to clear up or stabilise eventually, giving global markets the chance to recover. After all, even the most extreme trade wars can’t impact the markets indefinitely. Either politicians resolve them, or companies adapt to them. However, the lack of profitability is a much more serious problem. If a company can no longer reliably generate sufficient profits, its share prices are likely to remain low for the foreseeable future.
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