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Key points Germany is gaining strategic relevance as investors seek diversification away from U.S. policy and fiscal risks—helped by pro-growth reforms and industrial strength. The DAX remains attractively valued relative to the S&P 500, despite its outperformance, and offers exposure to global megatrends through high-quality European names. Mid-cap German equities (MDAX) could present the next opportunity, with domestic reform momentum and innovation-led names poised for a potential catch-up rally. Investors have long treated the U.S. as the anchor of global equity portfolios—but 2025 is putting that conviction to the test. Policy uncertainty is rising, with erratic tariff moves undermining U.S. credibility and complicating long-term corporate planning. Fiscal risks are mounting, as ballooning deficits and political dysfunction force investors to demand higher yields—not out of optimism, but caution. The U.S. dollar is weakening, adding another layer of volatility to global portfolios heavily tilted toward the U.S. Against this backdrop, investors are starting to question their U.S. equity bias. In contrast, Europe—and Germany in particular—offers a compelling diversification story, grounded in industrial strength, global export exposure, and greater policy stability. This shift in sentiment is already showing up in the numbers, as evident in the chart below. The DAX has outperformed the S&P 500 year-to-date, highlighting growing investor appetite for diversified, industrial-heavy exposure outside the U.S. Despite its YTD outperformance, the DAX remains meaningfully cheaper than the S&P 500 on a forward P/E basis. DAX 1-year forward P/E: ~14-16x. S&P 500 1-year forward P/E: ~20–22x.   That gap gives Germany headroom to re-rate, especially as macro risks in the U.S. rise and European earnings begin to surprise on the upside. Tactical rotation or structural re-rating? Germany isn’t just riding a market wave—it’s stepping into a potential policy renaissance. Recent local elections have opened the door to more business-friendly macro policies, including: Debt…

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Filed under: News - @ May 27, 2025 5:29 pm