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Investors favour German midcap shares over blue chips on recovery bets
Published by Global Banking and Finance Review
Posted on February 21, 2025
3 min readLast updated: January 19, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on February 21, 2025
3 min readLast updated: January 19, 2026
By Danilo Masoni
MILAN (Reuters) - Investors betting on a German economic recovery, helped by any post-election fiscal boost and the potential of an end to the war in Ukraine, are going all in on the midcap domestic stocks that could be the biggest long-term winners.
That has made Germany's MDAX index the barometer for any recovery spurred by the result of Sunday's election - more so than the internationally oriented DAX which has raced ahead this year thanks to global companies such as software maker SAP, which are less affected by the economic struggles at home.
Deutsche Bank sees fiscal stimulus and industry-friendly policies as catalysts that could drive the MDAX to significantly outperform the benchmark, should the outlook brighten for an economy that shrank for a second straight year in 2024.
The midcap index, which tracks firms such as conglomerate Thyssenkrupp, chemicals maker Lanxess, defence firm Hensoldt and meal-kit company Hellofresh, has a 28% revenue exposure to Germany, against the DAX's 20%, Deutsche estimates.
Ahead of the election, Lemanik portfolio manager Andrea Scauri said he had increased his MDAX exposure sixfold, partly through derivatives and direct stock purchases.
"If there's a favourable outcome in the German elections that leads to a larger deficit, the MDAX will soar, literally soar," he said. "Its underperformance has been huge."
Polls indicate the election may result in a conservative-led coalition government, an outcome markets would see as favourable, should populist parties fail to reach a one-third blocking minority.
Since Russia invaded Ukraine in 2022, driving energy costs higher, the MDAX has lost around 18% versus the DAX's 46% surge, suggesting there might be catch-up potential.
But the bet is not without risks.
"In Germany, the market has gone a bit ahead of itself on the expectation that after the elections, a new government will be formed with a softer stance on fiscal policy," said Enrico Vaccari, head of institutional sales at Consultinvest in Milan.
Roger Peeters, managing partner at fund advisory firm pfp Advisory in Frankfurt, is cautious, saying it is too early, for example, to look for profiteers of reconstruction in Ukraine.
"Even peace, let alone a ceasefire, would not necessarily mean that old trade relations would be revived," he said.
Goldman Sachs has said that already bullish option positioning might limit the upside if the German election result or talks over Ukraine under-deliver.
Nevertheless, the U.S. bank said on Wednesday certain cyclical European stock indices, such as the MDAX, which tend to perform well when the economy grows, looked still attractive to hedge upside risks.
Industrials and chemicals, two sectors that should benefit from a recovery in the economic cycle and falling energy prices, together represent one third of the MDAX weighting.
Relative valuations look attractive. Midcaps now trade at 2.4% discount to the DAX, having historically traded at a premium, LSEG Datastream data based on forward PE metric show.
(Reporting by Danilo Masoni; Editing by Dhara Ranasinghe and Alison Williams)
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