The DAX Index is the primary stock index of Germany. It includes the 40 largest and most liquid companies on the Frankfurt Stock Exchange.
The Hang Seng Index belongs to the Hong Kong stock market. It tracks the biggest companies on the Hong Kong Stock Exchange. It is very exposed to the banking (HSBC, AIA), consumer, real estate, IT and internet (Tencent, Alibaba), and banking (HSBC, AIA) sectors.
At first glance, these two indexes may seem to be majorly different. Still, worldwide market and economic forces connect them.
Does the DAX have an effect on the Hang Seng?
The DAX can have an effect on the Hang Seng Index, however this effect is usually indirect and changes in strength depending on how the market is doing. This is how it happens:
2. By using international supply chains for technology and industry
Global supply chains link Germany to Hong Kong and China:
- Many DAX companies, like as Siemens, BASF, Volkswagen, Infineon, and others, have strong business relations to China and Asia. The DAX’s weakening because of falling Chinese demand could hurt people’s feelings about stocks listed in Hong Kong.
- On the other hand, the DAX’s good performance, which is driven by strong Chinese exports or industrial orders, could help the Hang Seng stocks’ positive mood.
4. Finding a link between global liquidity and interest rates
Both indices are affected by global liquidity limitations and interest rate forecasts:
- When the European Central Bank (ECB) makes decisions or German economic data changes bond yields and liquidity, it can change the flow of capital around the world.
- A strong DAX underpinned by lower European yields might help the Hang Seng if Asian markets become more willing to take risks.
- If money departs emerging markets because of rising European yields or worries about the economy, the Hang Seng may be under pressure.
How Much of an Impact Is There?
Under normal market conditions, the DAX and Hang Seng have a moderate direct daily correlation. The Hang Seng is more affected by:
- The S&P 500 and Nasdaq are two US marketplaces that stand out.
- Information and policies about the Chinese economy
- News that is only for Hong Kong and China
Good Effects for Investors
- If you hold Chinese or Hong Kong companies, watch the DAX for indicators of European mood.
- A strong DAX close might give the Hang Seng a bullish tilt the next day, even if it is not usually the main driver.
- When the world is in a risk-off mood, the Hang Seng can also have trouble when the DAX is weak.
- Always look at DAX changes along with US market performance and news that is just relevant to China to get a fuller picture.
Smart investors don’t look at the Hang Seng as the main reason for its movement; instead, they see the DAX as an important piece of the global puzzle. Knowing this connection makes it easy to guess how people would feel in Asian markets overnight and in the early session.
