German stocks are massively outperforming their European peers. Here’s why

Germany’s stock market is massively outperforming its European peers this year and moving in lockstep with U.S. equities.

The main market, the DAX 30, is up about 19% so far this year, compared with the 5% hike of the European benchmark, the Stoxx 600. The gains in Germany are closer to performances seen stateside, where the S&P is up about 23% year-to-date.

Several reasons underpin these gains, including low expectations at the start of the year, the exposure to the United States economy and the upcoming snap election, analysts told CNBC.

Sabrina Reeh, senior portfolio manager at DWS, told CNBC on Wednesday that valuations were relatively low at the start of the year and the sentiment was “muted” across Germany equities, but that earnings developments ultimately came in “better than expected.”

One stock in particular propelled the German market: SAP, whose shares rose nearly 59% this year. Maximilian Uleer, head of European equity and cross asset strategy at Deutsche Bank, told CNBC that the company has contributed 8% to the year-to-date performance of the German market.

In late October SAP shares hit an all-time high after the company raised its full-year targets and posted strong numbers for its cloud business. At the time, CEO Christian Klein said SAP was “confidently” raising the outlook and added, “we are making strong progress on Business AI.”

The stock has kept gaining ground since the results.

The success of German equities this year is also related to their exposure to the United States.

“DAX companies generate a higher share of their revenue in the U.S. than in Germany. Despite concerns about potential tariffs, a significant portion of that revenue is produced local for local and likely not subject to tariffs,” Deutsche Bank’s Uleer said.

Though the collapse of the German government in November largely emerged as a surprise, analysts recognize the development could become a positive for equities.

“From a market perspective, snap elections are perceived as an opportunity for more structural reforms and higher spending, be it via a shift within governmental spending priorities or via a higher fiscal deficit,” Uleer said.

This is particularly relevant as manufacturing, traditionally a big component of the German economy, has been hit hard throughout 2024. The latest PMI data showed further contraction for the embattled sector in December.

DWS’ Reeh mentioned how the snap election helped with the overall sentiment toward the German market.

“We don’t know the actual political agenda,” she said, noting that it is unclear how many parties will be forming the upcoming government, but lower regulations and relaxing the debt brake may help improve sentiment.

Germany is now holding conversations about easing its famous debt brake, which stipulates strict debt targets. It is so far unclear how much more Berlin is willing to spend, but the overall trajectory points to a little bit more stimulus.

Despite Germany’s outperformance in 2024 and the potential new post-election stimulus, analysts have raised concerns about the impact of possible U.S. tariffs on Berlin.

President-elect Donald Trump has already threatened such measures on European economies, which could expose Germany’s auto sector to further pain.

Trump’s announcements are the “key item to watch,” Reeh said when asked about whether the German market’s outperformance will continue in the new year.