DAX 40 continues to attract investors

European stocks edged higher on Monday as market sentiment continued to improve. Appetite for risk has been steadily building over the past few weeks, driving European indices to fresh highs. Notably, Germany’s DAX 40 closed the week with a gain of over 5%, marking its best weekly performance in two years. In aggregate, the index has rallied 19% since its early April lows, which were triggered by Trump's Liberation Day announcement that rattled global markets​.

DAX 40 daily chartPast performance is not a reliable indicator of future results.

The bullish momentum has reignited most European markets, with the FTSE 100 and Euro STOXX 600 both rising approximately 12% from their April lows​. However, Germany has particularly stood out among European equity markets. This rotation toward Europe has largely been driven by a retreat from U.S. exceptionalism — a dynamic that has also benefited Asian markets.

As the outlook for global tariffs improves, investors have begun reallocating capital away from traditional safe havens like gold and the Japanese yen, moving instead into equities. However, uncertainty surrounding U.S. policy — exacerbated by frequent shifts in Trump's rhetoric — continues to cloud the American outlook. Amid this uncertainty, Europe and Asia, where valuations are more attractive, have become favoured destinations for capital​.

Germany, in particular, has attracted attention thanks to a significant policy shift. After years of fiscal conservatism focused on minimizing government debt, the German government has committed to increased public spending, particularly in defence. This change has reshaped the country’s investment narrative and generated renewed interest in German equities​.

While the defence, manufacturing, and industrial sectors are expected to be the primary beneficiaries of the fiscal stimulus, the positive effects are likely to permeate the broader economy. Financial firms should also stand to gain, with an improved growth outlook expected to fuel credit expansion and boost bank profitability. Additionally, stronger economic momentum is likely to support wage growth and domestic consumption​.

Overall, Germany’s fiscal shift reinforces the positive outlook on German equities, with the DAX 40 positioned as a key driver of bullish momentum within European markets.