Germany's blue-chip DAX stock index jumped above 20,000 points for the first time Tuesday following gains on US and Asian markets, defying multiple headwinds battering Europe's biggest economy.
The index, which groups the 40 largest publicly-traded companies on the Frankfurt Stock Exchange, reached 20,022 points at around 0900 GMT before slightly paring its gains.
The German economy, hit hard by a manufacturing slowdown and weak demand for its exports, has been struggling in 2024 and is on course to contract for a second straight year.
Adding to the challenges are heightened political uncertainty as the country heads for new elections in February following the collapse of the government, and the threat of new US tariffs under US President-elect Donald Trump.
But the DAX has nevertheless surged ahead, rising more than 19 percent since the start of the year.
This is in part because the groups in the index are not domestically focused, with "84 percent of the turnover of DAX companies generated abroad," Ulrich Stephan, head of investment strategy at Deutsche Bank, said recently.
Recent falls in the euro have also boosted Germany's export-oriented companies, analysts have noted.
Some key examples of German firms with big overseas footprints are Deutsche Telekom, whose US subsidiary T-Mobile operates the largest 5G network in the United States, insurer Allianz and software giant SAP.
German markets have thus been boosted by the same forces that have seen Wall Street stocks hitting fresh records since Trump's election win, with investors cheering his promised tax cuts and deregulation.
German stocks have also been lifted by hopes that China will unveil fresh stimulus to kickstart its beleaguered economy -- which would support Germany's crucial exporters.
Markets may also be betting that the German economy will start recovering in 2025 after a torrid two years marked by surging energy prices following Russia's invasion of Ukraine and post-pandemic supply chain woes.
Investors are "looking at least nine to 12 months ahead", said independent stock market analyst Andreas Lipkow.
Some stocks on the DAX have performed strongly due to specific factors.
Weapons manufacturer Rheinmetall is up 119 percent since the start of the year, boosted by healthy demand for its products as countries rush to re-arm following the outbreak of the Ukraine war.
Siemens Energy is up more than 320 percent as it rebounds strongly after receiving a state-backed bailout last year to resolve a crisis in its wind power unit.
It is a different story for the country's auto titans -- Volkswagen, BMW and Mercedes-Benz -- whose shares are down between 15 and 30 percent since January as they battle high costs, weak demand and fierce competition in China.
A key challenge for next year could come if Trump imposes hefty tariffs on all imports to the United States, with the German central bank warning the move could knock one percent off the country's growth.
But at home, investors are hopeful the resolution of ongoing political problems will have a positive effect, said Jochen Stanzl, chief market analyst for Germany with CMC Markets.
"There is hope that new elections in Germany will produce a government that will stimulate growth," he said.
