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Eurozone consists of nearly two dozens of countries, each having its own economic characteristics. The sovereign debt crisis, also known as European crisis, has brought down stock markets of all the countries. However, it is logical that the reaction could not be quantitatively the same everywhere. In this article we will try to investigate the behavior of the major German index DAX and the major French index CAC40, to compare their dynamics in order to determine the relative pace of recovery of each of them from 2009 to 2013.
The idea of comparing the two indices, DAX and CAC40, is based on the assumption that the German economy in recent years has been the driving force of the euro zone, almost a guarantor of stability in the region. The demand for German government bonds has helped to reduce the cost of borrowing - in Germany it has been and remains one of the lowest in the euro area. Economic growth in Germany also has been remaining higher than the corresponding rate in France that has faced more difficulties while coping with consequences of the financial crisis in 2008 and the European debt crisis. Overall, we assume that the more stable German economy is, the healthier the stock market will be. DAX is the indicator of German stock market.
According to individual charts, shown below, both indices have shown rather mixed dynamics since 2009. In 2011 there was a significant drop, when Europe's sovereign debt crisis erupted. But it was the German DAX, not French CAC 40 that was able to fully recover after falling in 2011.
|German Index DAX|
|French Index CAC40|
It is also interesting to compare the behavior of the indices, relative to each other. Let us draw a chart of the PCI, including DAX in the Base portfolio and CAC40 – in the Quoted. As a result, we will obtain quite stable growing structure, which shows that DAX has been systematically beating CAC40. It should be noted that during this period declines have been observed as well, but the overall trend is upward sloping. This confirms our assumption about the higher performance of German stock market during this period.
A closer look at the chart DAX/CAC40 allows revealing relative cyclical nature or seasonal dependence of fluctuations, taking place in an upward channel for already four years. Moreover, local highs on the chart (of closing prices) are observed every six months - at the beginning of summer and at the beginning of winter, and local lows - in the early fall and early spring. However, the cycle has narrowed a little during the last year. Local peaks correspond to the points when DAX had the maximum value in relation to CAC40 during this period. Conversely, local lows correspond to relatively low values of the ratio DAX/CAC40.
With GeWorko PCI toolset on NetTradeX platform there is a wide range of opportunities for comparing various stock indices. Indices combine assets that have common characteristics, be it geographical ties, company size, economic sector, or any other characteristic. Such features as: differences in the direction, reaction to a specific macroeconomic factor, speed of movement of various classes of assets - all can be reflected in the PCI chart, ready for a serious analysis, with implication of technical indicators.