Germany's Stock Market Has Changed. Julian Wiemann Looks at What Comes Next

Germany has spent the past few years dealing with an uncomfortable reputation. Once seen as the industrial engine of Europe, the country has increasingly been described as the continent's "sick man" because of high energy costs, weak growth and persistent structural challenges.

The stock market, however, tells a somewhat different story.

The DAX has reached new highs, corporate earnings are recovering and several of Germany's largest listed companies are in considerably stronger positions than the broader economic headlines might suggest. Looking beyond the country's domestic economy reveals a market supported by global revenues, industrial expertise and companies that have spent years adapting to a more difficult environment.

This is where the current German equity story becomes interesting. Julian Wiemann looks at what is supporting the DAX, which sectors stand out and what investors should keep in mind as Germany's economy moves through another period of transition.

The DAX tells a different story from the German economy

Germany's economic performance and the performance of its largest listed companies are not necessarily the same thing.

The DAX 40 has continued to perform strongly, despite the relatively weak domestic backdrop. One reason is the international exposure of many companies in the index. A large share of their revenue comes from customers outside Germany, giving them access to markets where demand has remained more resilient.

Earnings expectations have also improved. Forecasts for DAX companies point to stronger profits in 2026, with average earnings growth estimated at around 14% compared with the previous year.

Valuations remain relatively moderate when compared with some major international markets.

There is also a less visible part of the story. Many German companies have spent recent years reducing costs, adjusting their supply chains and becoming less dependent on individual markets. Those changes may not attract much attention during periods of economic optimism, but they can make a meaningful difference when conditions remain uncertain.

Three developments worth watching in the DAX

The improvement in profitability is one of the clearest reasons for the stronger outlook.

German companies have faced weak domestic demand, higher energy costs and tighter financial conditions. After several difficult years, earnings are beginning to recover across a wider range of industries.

Technology, industrial companies, financial services and parts of the automotive sector are all contributing to the improvement.

The distinction between domestic and international businesses is particularly important. Companies that generate a substantial share of their revenue abroad are less dependent on the German consumer and domestic economic cycle.

SAP is a good example of Germany's technology strength, while Siemens continues to benefit from industrial and infrastructure demand. Allianz has a broad international insurance business, and Rheinmetall is benefiting from a very different but increasingly important source of demand: higher European defense spending.

These companies operate in very different industries, but they share one characteristic. Their prospects are not determined solely by the health of the German economy.

Germany's industrial base is being reshaped

The longer-term story goes beyond interest rates.

Germany is undergoing a substantial investment cycle involving defense, energy infrastructure, digitalization and the modernization of industrial capacity. These projects are likely to extend over several years rather than being limited to a single economic cycle.

That creates potential opportunities for companies with expertise in engineering, automation, electrical systems, semiconductors and defense.

Siemens is positioned across several areas of industrial and infrastructure investment. SAP represents Germany's software and digital capabilities, while Infineon has exposure to semiconductor demand. Rheinmetall, meanwhile, is benefiting from the sharp increase in European defense spending.

The investment cycle is particularly relevant because Germany already has an established industrial base. New spending does not have to create an entirely new ecosystem; in many cases, it expands capabilities that German companies have developed over decades.