Will the DAX Sink or Swim Behind Germany's Fragile Economic Growth?

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Germany's DAX (DAXINDICES: ^DAX  ) pulled in a strong week for investors across the Atlantic, as the lead stock index for Europe's top economy racked up gains of 1.5% over the past five days. The DAX has shot up nicely over the past six months after a slow start to the year, and the index has cruised to year-to-date gains of more than 15% headed into the final stretch of 2013.

In the long run, however, can the DAX keep up its momentum? Germany's economy has managed to stave off the recession, but the country's top businesses like chemicals giants BASF (NASDAQOTH: BASFY  ) and Bayer (NASDAQOTH: BAYRY  ) need a solid business foundation in place to ward off the economic ills of Europe. Are these opportunities investors should invest in or ignore?

A rosy look toward the future
Germany's private sector has managed to keep its head above water throughout Europe's downturn, but signs show that its momentum is fading. Markit's composite Purchasing Managers Index, which rates both the country's services and manufacturing output, showed Germany's business activity growth slowed this month. Markit's composite PMI measuring Germany's October decreased from 52.2 to 51.5, where any mark above 50 indicates expansion.

It shows that Germany's businesses are still on the upswing, but the country will need to do more to spur growth in the future. With Italy, Spain, and other European nations still unable to dig out of economic holes, Germany's exports have waned over the past months -- a trend that will haunt the country's economy if it keeps up into next year.

However, Germany's government isn't so pessimistic about the economic outlook. Berlin projected Germany's GDP to expand by 1.7%, and leading German think tanks also foresee greater than 1% growth next year.

The economy's resilience is paying off for BASF, at least. The company reported its third-quarter results earlier this week, and BASF, the largest chemical producer both in Germany and the world, grew earnings by more than 18%. The company has taken advantage of both the recent rises in the auto industry and the energy sector for its success, with its oil and gas division in particular boosting earnings by more than 13%.

In a good note for investors looking ahead, BASF isn't content to sit on its laurels. The company's making inroads into the high-growth nutrition space, particularly in its 2012 acquisition of Pronova BioPharma to add Omega-3 fatty acid products to its lineup. Given how explosive the nutrition market has become across the world, further investment here could unlock a huge new market for BASF and its investors.

Chemical rival Bayer has been making inroads in its formidable health-care space. The company's been one of only a few of Big Pharma's best to grow sales recently, as Bayer has avoided most of the pitfalls of the patent cliff that has taken a big toll on drugmakers' revenues across the industry. Bayer still boasts a robust pipeline of drugs, and this company's pharmaceuticals look to continue bolstering Bayer's success in the long run.

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9/26/2016 8:32 AM
^DAX $10450.62 Down -176.35 -1.66%
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BAYRY $102.62 Down -0.62 +0.00%
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