The German DAX is accounted for in such a way that dividends are systematically factored into performance. We will therefore compare it logically with the CAC 40 index, dividends reinvested (Gross Return). The DAX tracks the performance of the 40 largest companies listed on the regulated market of the Frankfurter Wertpapierborse (Frankfurt Stock Exchange), whereas the CAC 40 does the same with Euronext Paris companies. This structure has not always been the same for the DAX. Initially, the DAX tracked the 30 largest German companies, before expanding its index in September 2021.

Since the start of the year, there has been a very significant performance gap between the two indices: the DAX has gained 16.2%, while the CAC 40, dividends reinvested, has risen by just 2.3%.

So why is the DAX performing so well when German growth is likely to be flat this year? The answer is simple, Goldman Sach tells us: the DAX has held up well because it is not really linked to the German economy. According to the bank's data, only 18% of the index companies' revenues are generated in Germany, versus 22.7% for the CAC 40 .

So, let's compare the composition of our two indices. The German DAX is concentrated around three poles: industry (23.5%), followed by financials (20.2%), tech (18.8%) and consumer discretionary (11.2%), which includes the German automotive sector. The CAC is polarized by two sectors: consumer discretionary, notably luxury goods, with 26.5%, and industry with 25.8%. These are followed by healthcare (11.2%), financials (9.3%) and energy (7.7%).

Source: Bloomberg

Germany is benefiting from the excellent performance of its national champion SAP, which accounts for 12% of the DAX and is up 59.7% this year. What's more, the financial sector is also driving Germany's performance. The banks, Deutsche Bank (+26.6%) and above all the much-discussed Commerzbank (+49.5%), which is the subject of a takeover attempt by Italy's UniCredit, are on a roll. The same is true of the insurance sector, with Allianz (+21.8%) and, more recently, the two reinsurance leaders Munich Re (+26.5%) and Hannover Re (+14.3%), which have benefited from the record profits posted by their subsidiaries. record profits on high-risk premiums due to global market uncertainty and climatic hazards. Last but not least, Rheinmetall (+70.7%) also benefited from strong demand in the armaments sector.

However, the German automotive sector is in a bad way, faced with falling demand for electric vehicles, rising energy costs and growing competition from China: BMW, Volkswagen and Porsche lost 25.6%, 18.3% and 16.4% respectively; Mercedes-Benz shed 8.7% and Continental fell 24.5%. In France, Renault strangely stood out from the pack, gaining 16.3% since January, while Michelin lost just 3.2%.

At the same time, the CAC is benefiting from its heavy exposure to the luxury goods sector, which is itself losing ground due to the slowdown in China: LVMH, the largest weighting at 10%, has lost almost 14% since January 1; Kering, parent company of Gucci, is down 39.69%; only Hermès is doing well, up 10.85% over the same period. Non-cyclical consumer goods, represented by L'Oréal (-20.4%) and Pernod Ricard (-22.6%), also disappointed. However, there were strong performances from manufacturers Schneider Electric (+34.5%), Safran (+32.8%) and Thalès (+13.2%), as well as EssilorLuxottica (+20.4%) and Sanofi (+11.5%) in healthcare, and AXA (+19.2%) in insurance.

And yet, our two indices have posted virtually identical performances since 2008. The DAX outperforms the CAC 40 GR more often than the CAC 40 GR, although the latter has been in the lead since 2021. So we're seeing a reversal in market trends between the two leading indices. Is the DAX set to win the best index duel with the CAC 40? Time will tell soon enough...