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File picture: The German share price index DAX graph pictured at the stock exchange in Frankfurt, Germany. The DAX index has emerged as one of the surprisingly best performers after a long time. This reflects renewed optimism in Germany’s economy, which is undergoing a reset.
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If you’d gone into hibernation on January 1 and just woken up, you might assume the global markets, especially the US, had had a smooth ride in H1 of 2025. For example, the 2.9 per cent, 4.51 per cent and 4 per cent returns for Dow Jones, S&P 500 and Nasdaq Composite mask some of the wildest gyrations the indices have seen in a six-month period.
In the first week of April, S&P 500 and Nasdaq saw their third worst two-day performance in 20 years on the lines of the volatility witnessed during the global financial crisis.
Amid these turbulences, some unlikely winners and losers across equities and currencies is the story of this year’s H1.
US, Europe switch places
While AI, Magnificent Seven and US exceptionalism were the euphoric themes at the dawn of the year, in reality the 20.7 per cent returns for Germany’s Dax index makes it one of the surprisingly best performers after a long time. This reflects renewed optimism in Germany’s economy, which is undergoing a reset. As part of a €800-billion plan, the EU lifted the rule requiring member-nations to keep budget deficits below 3 per cent of GDP.
Germany followed suit, with the Bundestag voting to reform the Schuldenbremse — a constitutional “debt brake” limiting the budget deficit to 0.35 per cent of GDP, enacted in 2009 after the global financial crisis. With this reform and plans to increase deficits and spend more, German stocks found favour like never before. These actions have completely boxed out tariff war related concerns.
Even after this out-performance, the Dax still remains one of the cheapest major index at a PE of 18.2 times. So is the case with China’s Hang Seng, which is the best performer YTD. It trades at a PE of 11.22 times. In effect, the cheapest major indices at the start of the year — Ibovespa, Hang Seng, FTSE 100 and Dax — are the best performers amongst global indices.
When it comes to currencies, while the dollar remains the global reserve currency, de-dollarisation appeared to gain traction. The dollar index (DXY) is down 10.2 per cent in H1 2025, its steepest six-month fall since June 1973, while the euro surprisingly had one of its best six months. Other major currencies have also appreciated against the dollar, unlike last year when the dollar stood alone in strength.
What lies ahead
One of the most remarkable features has been how much markets have rebounded from the lows. For example, the Nasdaq Composite is up 32.78 per cent from the tariff war lows. India’s Nifty 50 is up by 16.1 per cent. But as compared to the start of the year, the uncertainties are only much higher whether it is the tariff war, geopolitics, or slowdown in the US economy post the boom years following Covid.
So, hereon, a lot will depend on how earnings growth plays out. Some of the tariff war related impacts will be first seen in the upcoming June quarter earnings.
The H2 of the year will reveal two important things — whether markets were too casual about tariff wars, and, more importantly, whether the de-dollarisation process is for real or still a myth.
Published on June 28, 2025
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