At the end of 2023, the mood in the German economy had deteriorated again according to the ifo Business Climate Index. At first glance, this negative trend continued in January. The business climate index continued to fall and expectations in the economy as a whole were more pessimistic. The ifo Institute concludes that the German economy is stuck in recession.

Nevertheless, there is hope for equity investors. The deterioration in the climate is due to significant setbacks in the service sector, in trade and above all in the construction industry. In industry, on the other hand, both the business situation and the business expectations, which are decisive for the private wealth stock market indicator, have improved again following the decline in December.

A month ago, we commented: "Short-term fluctuations in the expectations component are not unusual when the economy is slowly and painstakingly working its way out of a trough". This assessment that the manufacturing sector is now stabilising after a long dry spell was supported by the latest data.
It is important for you to know that only three consecutive declines in business expectations in industry would have cancelled out the existing positive economic signal. We are now a long way from that again. The offensive positioning of the private wealth stock market indicator will therefore not change for the time being.

The bottom line:

All three components of the private wealth stock market indicator continue to look promising. The economic indicator is still "green". The current market valuation of the DAX relative to its long-term notional value is still fair despite the price increase in recent months. The strategic corridor for the equity allocation therefore remains at 70 to 110 per cent of the individually planned equity allocation.

Within this range, the results of the capital market seismograph determine the exact positioning of the stock market indicator. Here, too, little has changed recently. The probabilities of a calm, positive market (green) and a turbulent, positive market (yellow) are roughly equal. The probability of a turbulent negative market is still close to zero. In view of this, the capital market seismograph continues to suggest a full investment ratio.

The stock market indicator therefore maintains the overweighting of equities. Specifically, the equity allocation remains at 110 per cent of the individually planned equity allocation.
This means that anyone who considers an equity allocation of 50 per cent to be optimal based on their individual preferences in the strategic asset allocation should now be 55 per cent invested in equities (110 per cent of 50 per cent results in an equity allocation of 55 per cent). It should be particularly worthwhile to consider small and medium-sized stocks.

Yours sincerely,
Klaus Meitinger

Note: Despite careful selection of sources, no liability can be accepted for the accuracy of the content. The information provided on the private wealth homepage is for information purposes only and does not constitute an invitation to buy or sell securities.