Since reaching a low point in late October, the DAX has gained more than 2,000 points, marking consecutive record levels. This might lead to the assumption that the German leading index has more or less exhausted its potential and is due for a correction. The index has recorded a gain of around 20% since the beginning of the year. While this is one percentage point higher than the Euro Stoxx 50, a less favorable comparison arises when looking at indices across the Atlantic. Although the S&P 500 performed marginally better with a gain of just over 23%, the technology-heavy indices Nasdaq Composite (+42%) and Nasdaq100 (+52%) make the DAX appear less impressive. The Dow Jones Industrial Average is the only index in the US performing worse in 2023, with a gain of only 12%.

The Dow's struggle is mainly attributed to the high percentage of companies grappling with new challenges. Established firms like consumer goods giant Procter & Gamble, pharmaceutical behemoth Merck, beverage company Coca-Cola, energy firm Chevron, and drugstore chain Walgreens Boots Alliance all show negative or nearly negative performances this year. Without the exceptional success of tech giants like Apple, Microsoft, Intel, or Salesforce, the Dow's performance would have been significantly worse.

This is where a challenge arises within the DAX. When considering valuations, they are certainly not exceptionally high across the board. Particularly, traditional automotive companies like Volkswagen, BMW, and Mercedes-Benz are notably undervalued with price-to-book ratios well below 1. This suggests a considerable skepticism among investors regarding their ability to undergo successful transformations. This skepticism extends beyond the electrification of the fleet, with the journey toward the software-defined car appearing predetermined. Software is the realm where all German automakers are still striving to catch up.

The DAX is also dominated by an old industrial guard beyond the automotive industry. While Siemens Energy and Siemens Healthineers are relatively new to the stock market, both have a long tradition as part of the Siemens Group, which also remains in the DAX. SAP, one of the few genuine tech stocks in the German leading index, is expected to perform exceptionally well this year but has already celebrated its 50th anniversary last year. Continental, which currently undergoes restructuring, celebrated its 150th anniversary in 2021.

The only true newcomer is the online retailer Zalando, which was founded in 2008. However, it belongs to an industry that is highly sensitive to economic conditions and currently suffering from inflation and rising interest rates. Other newcomers from the technology sector, like Hellofresh, have only spent a short time in the DAX. The index's biggest disgrace in its history is presently being litigated before the 4th criminal chamber of the Munich Regional Court. The payment processor Wirecard, which was founded in 1999, was supposed to be a new flagship for the German economy but turned out to be the opposite.

Therefore, it's not surprising that SAP, as a single company, dominates the DAX 40 with a weight of over 10%. The software company, that is worth more than 167 billion euros, naturally benefits from Deutsche Börse's decision to raise the capping limit from 10% to 15% in the spring. However, even 15% seems insufficient in the medium term given the composition of the "Tyrannosaurus DAX". Nonetheless, the loud alarm signal for the assessment of the location should not be the DAX and its predominantly globally oriented companies. MDAX and SDAX better reflect how German companies are currently viewed by investors. And if that's the case, the outlook is grim. Since the beginning of the year, the MDAX has only gained 4.5%, and the SDAX, nearly 9%. Both figures are sobering.