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DAX 30 forecast for 20.07.2020

July 21, 2020

July 21, 2020

DAX 30 forecast: Europe changes the marketsDmitri Demidenko

Fundamental DAX 30 forecast for today

German stock index can well outperform the stock indexes of the USA

and other advanced economies

When you go against the majority and express scandalous, at first glance, thoughts, there is a risk of being burned at the stake. After all, if the majority were always right, the Sun would still be going around the Earth. My [trading recommendation][1] given June to buy the [DAX 30][2] with the targets at 13720 and 13860 could have seemed wrong at that time. Europe was facing the worst recession over the past few decades, and the corporate profits should have been so weak that the German stocks could have crashed. The median forecast of Bloomberg’s experts suggests that the major German stock index should fall to 12132 by the end of 2020, which is 9% down from the current levels.

For me, the forecast based on the statement of facts is at least doubtful. A recession? Yes, the euro-area economy is in a recession, but the downturn of Germany’s economy is not as deep as in other advanced economies. Terrible corporate reporting? The same is true for other countries as well. What is more important is that the revenues of German companies should start rising already in the first half of 2021 amid the GDP rebound. In mid-July, I bet on the huge fiscal stimulus and a better epidemiological situation in Germany than that in the USA to other euro- area countries. It seems I have been right. Furthermore, the agreement of the French-German emergency plan has pushed the [DAX 30][2] up to the highest levels since late February, and the bulls are not going to stop.

I should note that the issue of the euro-area bonds to fight the economic fallout of the pandemic resulted in the faster growth of the [EuroStoxx 50][3] than the global peers. And this is not only because of the fiscal boost or the unity of the euro area.

Dynamics of stock indexes

![LiteForex: DAX 30 forecast for 20.07.2020][4]

Source: Bloomberg

Over many years, the European equities were behind the US peers for three reasons. First, the US leaders, as a rule, were the equities of high-tech companies, but there is no Facebook, Google, or Apple in Europe. Second, investors took into account the risks of the euro-area breakup when investing in European stocks. Third, the favorable tax regime and loyalty of regulators allowed US corporations to yield more profits than their peers from Europe. As a result, in terms of the P/E ratio, the [S&P 500][5] has outperformed the EuroStoxx 600 by more than 50% over the past twenty years.

The French-German plan changes much. High-tech companies are being replaced by environmental companies, and the EU’s significant spending on this area can turn Europe a hub for the growth leaders. According to the P/E ratio, the [S&P 500][5] looks overbought, and the [DAX 30][2] seems undervalued compared to the US stock indexes. The euro growth offsets the benefits of the US companies associated with the tax regime and regulators. According to the July survey by BofA Merrill Lynch, asset managers increased the allocation to euro zone equities by 9% to net 16% overweight. It makes sense in my opinion. The German stock index has room for growth. So, I should raise my [July forecast][1] to 14200. The [DAX 30][2] trading recommendation is to buy.

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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Price chart of FDAX in real time mode

![DAX 30 forecast: Europe changes the markets][8]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. www.liteforex.com/blog/analysts-opinions/dax-30-citius-altius-fortius/
  2. my.liteforex.com/trading/chart?symbol=FDAX&returnUrl=true
  3. my.liteforex.com/trading/chart?symbol=SX5E&returnUrl=true
  4. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/stocks-21-07-20.jpg?w=30&s=c224f58572ca3256cf1a75174900d387
  5. my.liteforex.com/trading/chart?symbol=SPX&returnUrl=true
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