Why the DAX has underperformed the STOXX: energy and autos

For all the talk about German fiscal stimulus driving growth, Germany's DAX .gdaxi has meaningfully underperformed the STOXX .stoxx 600 year to date, up 8% compared to 11.5%.

And if you look at earnings growth in the second quarter, you can see why. In fact, if anything that gap looks small. On Deutsche Bank's sums, STOXX 600 earnings growth accelerated to 23% in the quarter compared to 11% for the Dax.

Given all that, it's almost surprising that the DAX has risen at all. But this recent earnings cycle does suggest there is a positive story below the surface.

Deutsche Bank say if you exclude energy and autos, DAX earnings growth was 18% compared to 14% for the STOXX 600, and aggregate beats outside of these two sectors were roughly double in the DAX compared to the STOXX.

And looking forward Deutsche are optimistic. They think auto earnings should at least stabilise. And with less of a drag from them, "Strong earnings growth (overall), combined with the recent improvement in macro data — factory orders, PMIs — and the government’s announced reform package should reignite positive sentiment for German stocks over the coming months".

The reason is sort of about Germany, and also what's in the respective indexes. The Dax — and Germany — has a lot of auto makers, and its fair to say they haven't done well. BMW BMWG.DE is down 36% year to date, Volkswagen VOWG.DE 29% and Mercedes Benz MBGn.DE 24%.

Struggling software stocks haven't helped either, and SAP SAPG.DE is down 15% year to date.

The other problem for the DAX is it doesn't have much in the way of energy companies, and European energy stocks are up 32% this year. .SXEP