A month ago, we pointed out a probable economic turnaround in Germany and a positive stock market reaction to the general election. We wrote at the time:

‘It is now clear that a CDU/CSU/SPD coalition is the most likely option for the new government. Together they can be trusted to achieve an economic turnaround, which both parties have already achieved once before - in 1982/83 and 2003 - under their sole leadership. In this political constellation, a reform of the debt brake also seems very likely. If done correctly, it could trigger the urgently needed boost in investment with corresponding multiplier effects. We therefore believe it is very likely that business expectations in the industry will continue to improve in the coming month.’
That's what happened. A gigantic debt package has been passed and the formation of a government should be finalised by Easter.
The ifo business climate is honouring this development as expected. According to the Munich-based economic researchers, the mood among companies in Germany brightened in March. The German economy is hoping for an improvement.
The fact that scepticism in the boardrooms is decreasing is particularly evident in the index of business expectations in industry, which is so important for the private wealth stock market indicator. This had already improved significantly in February from minus 24.9 points to minus 18.1 points. This was followed in March by another big jump to just minus 10.8 points (chart below).

You know: In the past, three consecutive improvements in business expectations were regarded by economic researchers as a clear turnaround in the German economy. In this case, the economic traffic light of the private wealth stock market indicator automatically switches to green.
We are very confident that this point will be reached in April. This is because many of the business leaders surveyed by the ifo Institute probably had no idea at the time of their response to the current survey that the (new) government's gigantic debt package would be waved through by the (old) Bundestag and Bundesrat.
We are now eagerly awaiting the concrete form that the 2030 economic agenda will take. Success and failure can be measured by whether it succeeds in setting the course for higher long-term potential growth in Germany. Consumptive or pseudo-investment spending - social welfare, wages, commuter allowances, mothers' pensions - would be counterproductive. The more resources from the infrastructure fund are channelled into genuine public investment and incentives for private investment, the greater the positive effect on the economy will be. Add to this the long overdue, courageous structural reforms - faster authorisation procedures, less bureaucracy, tax relief for companies - and Germany could really get its act together.

We believe that the people in charge are capable of meeting this challenge. In this case, it is very likely that business expectations in industry will continue to improve in the coming month and that the turnaround in the German economy and especially in industry will then become ‘official’, so to speak.

The bottom line for investors:
The economy, especially the business expectations of German industry, and the market valuation of the DAX together define the strategic corridor for the equity allocation of the private wealth stock market indicator.
Although the economic component of the stock market indicator is still technically set to ‘red’, we believe there is a very high probability that it will change to ‘green’ in April and are already taking this into account in our investment strategy.

A month ago, for example, we pointed out that the German stock market would quickly honour the first signs of an economic turnaround - especially among small and medium-sized stocks. It therefore seemed appropriate to us at the time to increase the equity allocation as a precautionary measure. This has paid off. Today we are taking a further step in this direction.

However, the valuation of the German equity market is not quite as positive as the economic trend. The market as a whole is now trading 10-20 per cent above its ‘fair value’.
However, there are still major differences. The DAX is clearly overvalued. The shares of small and medium-sized companies, on the other hand, are still undervalued.

What is important for you is that if both factors - the economy and valuation - are combined, the stock market indicator would set the corridor for the equity allocation at 75 to 100 per cent of the individually planned equity allocation once the economic trend has reversed.

In view of the promising starting position, we therefore considered it justifiable a month ago to raise the corridor from 45 to 75 per cent to 55 to 85 per cent as a first step. It now seems appropriate to raise this further to between 65 and 95 per cent. Due to the valuation, we are focussing on the small and medium-sized company segments when expanding our equity exposure.

Within the corridor described above, the capital market seismograph - the third component in the private wealth stock market indicator alongside the economy and valuation - defines the exact equity allocation. This addition is so valuable because the seismograph can be used to capture the often rapidly changing international stock market sentiment. At the beginning of April, for example, it will become clear how Donald Trump's ‘reciprocal’ tariffs are actually organised. We hope that the seismograph will put us in a position to react promptly if the worst comes to the worst.

Currently, the seismograph's probability landscape has changed little. For months, the result calculated by Oliver Schlich of Secaro has been very positive. This is why the equity allocation in the private wealth stock market indicator remains at the upper end of the strategic corridor and has now risen from 85 to 95 per cent.

An example: For investors who consider an equity allocation of 50 per cent to be optimal in the strategic allocation of their assets, the model would suggest investing 47.5 per cent in equities (95 per cent of 50 per cent results in an equity allocation of 47.5 per cent). The cash portion, 2.5 per cent, is available to buy more cheaply in the event of any setbacks.

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 stock market indicator is for information purposes only and does not constitute an invitation to buy or sell securities.