Most corporations are doing well despite Corona. That’s why investors are right to speculate on higher share prices. And it’s not just China that’s helping.
For months, not only perplexed investors have been asking how it can be that the stock markets rush from one record to the next. Despite Corona and the renewed economic downturn. Despite the second worst economic slump in post-war history, with gross domestic product falling by a good five percent.
But the courageous investors in the first wave in the spring, when the stock markets were far lower than they are now, as well as the stragglers in the second wave in late fall, have probably done a lot right. The companies are delivering what investors speculated on early on with rising share prices.
After the specialty chemicals group Covestro and Deutsche Post, which even raised its annual forecast shortly before the end of the year in view of the flood of parcels, Europe’s largest chemicals giant BASF has now also presented strong preliminary figures. In the final quarter, sales increased by eight percent compared to the previous year. It should be noted that this is a comparative period when the pandemic did not even exist.
This is more than remarkable and deserves attention, especially because BASF is a typical early indicator for the future development of the economy. With its basic chemical products, the Ludwigshafen-based company supplies companies in virtually all manufacturing sectors worldwide. These companies only place orders if they have sufficient signals that they can process the plastics they purchase, for example for building car seats, or chemical ingredients, for example for creams and foods, and sell them to their end customers.
If BASF’s earnings and share prices rise, future economic production and stock market performance are good – so goes the wisdom on the international financial markets. Measured against this, things do not look bad for 2021. BASF’s share price has risen by 75 percent since the spring crash. Despite company-specific problems that led to a billion-dollar write-down in the past fiscal year and will probably result in the first net annual loss in post-war history.
Strong business in China in particular is boosting BASF and just about all listed companies. Earnings in the Far East, where the pandemic is largely a thing of the past, are offsetting the impact of the Corona pandemic in Europe. BMW, for example, reported a slump in sales of a good eight percent in 2020 for its BMW, Mini and Rolls-Royce brands, and as much as 13 percent. However, the Munich-based company sold 777,000 cars in China. That was seven percent more than in the previous year. Like Daimler, BMW now sells every third car in China. At Volkswagen, the figure is even a good 40 percent. No other large market is growing so rapidly.
Special economic conditions are providing an additional boost, as Infineon is likely to prove. The semiconductor manufacturer can hardly satisfy the high demand for its high-tech products anyway. Now there are rapidly increasing orders from carmakers, who are installing more and more chips.
Investors are aware of this trend, which is why the Infineon share is reaching new record highs almost daily and is now 65 percent higher than it was exactly one year ago, before the pandemic and the crash on the stock markets. Weaknesses are virtually nowhere to be seen in most listed companies. In this respect, it was right to bet on a rapid recovery.
So far, there are no signs that it will fizzle out quickly – even though the economy is threatening to slip back into recession in the first quarter. Retail, catering and tourism are experiencing their worst crisis of the post-war period. But this broad domestic market, which is highly visible to everyone every day and on which many millions of jobs depend, is not reflected in the breadth of stocks. There are no companies in the Dax that are based in the struggling sectors.
Either the major stock market groups generate most of their sales in boom regions such as the Far East and America. Or they are profiting from pandemic-related booms like Deutsche Post and Infineon or the future Dax climber Hellofresh with its cooking boxes delivered to the doorstep. In this respect, the high stock market prices and the struggling economy are not a contradiction in terms. The decisive factor remains the selection of promising individual stocks with strong positions in growing foreign markets.