German stocks race to record

At the Frankfurt Stock Exchange, Germany's blue-chip DAX index hit a new record, briefly touching 9,010 points in mid-day trading on Friday.

The DAX has now risen by about 18 percent since the start of the year, and is 50 percent higher than at the beginning of 2012.

Surprisingly, the new record was set despite a lull in the business climate in Europe's biggest economy in October. The widely-watched Ifo business sentiment index fell to 107.4 points from 107.7 points in September, after rising for the previous five months.

Market analysts attributed the German stocks rally to the US political gridlock over the national budget and debt ceiling, which had led to heightened uncertainty among investors about stock markets there.

“The new safe heaven is called Europe, respectively Germany,” Ludwig Donnert, asset manager with Tao Capital, told German news agency dpa.

Moreover, analysts said the stocks boom continued to be fuelled by market expectation that the US Federal Reserve would not start reducing its $85-billion-a-month (61 billion euros) asset purchasing program before spring next year.

Record comes with a warning

Tobias Basse, analyst with German state-owned bank NordLB, said that global investors apparently want to see the DAX surge to 10,000 points. He warned, however, that the rally was facing real economy risks.

“If the DAX would clear the 10,000-point too quickly, German business and growth data will not keep pace with that,” he told Reuters news agency, and warned of a backlash as investors would take profits.

And indeed, dragged down by the debt crisis in the eurozone and sluggish global growth, the German economy is expected to record only meager growth of 0.5 percent this year, according to a government estimate published this week. For 2014, Berlin predicted gross domestic product (GDP) to expand by 1.7 percent, admitting, however, that there would be many uncertainties.

uhe/ph (Reuters, dpa, AFP)