Goldman Sachs highlights German stocks’ resilience amid political risks

Tuesday 22 September 2026 - 11:50

By: Azzat Manal

Goldman Sachs highlights German stocks’ resilience amid political risks

German equities may prove relatively resilient to domestic political uncertainty, partly because many of the companies listed on the DAX derive a substantial share of their revenues from international markets. According to Sharon Bell, European equity strategist at Goldman Sachs, Germany’s political developments remain an important factor for investors, but their direct impact on major listed companies could be limited by the global nature of their operations.

The structure of the DAX gives the German stock market significant exposure to economic conditions beyond Germany. Large companies in sectors such as industrials, technology, chemicals, pharmaceuticals and automotive depend on demand from Europe, North America, Asia and other international markets. As a result, their earnings are influenced not only by domestic economic conditions but also by global trade, currencies, interest rates and overseas demand.

Bell has also pointed to government spending on defence as an increasingly important factor for German equities. Berlin is substantially increasing its military expenditure as Germany and other European countries seek to strengthen their defence capabilities. A recent study by Hamburg Commercial Bank estimated that Germany plans to spend around €108 billion on defence in 2026, with approximately €73 billion potentially flowing directly to businesses.

The increase in defence-related spending could create opportunities for companies involved in manufacturing, engineering, technology and other parts of the industrial supply chain. Germany and the United States have also agreed to deepen cooperation between their defence industries, while Berlin is expanding its military investment and procurement plans.

For investors, the significance of this spending extends beyond the defence sector itself. Increased public investment can generate additional demand for industrial equipment, advanced technologies and infrastructure, potentially benefiting companies with exposure to government-backed projects.

At the same time, Germany’s broader economic performance remains an important consideration. The country has faced a prolonged period of weak industrial activity and subdued growth, particularly in manufacturing. However, recent market movements suggest that investors are continuing to reassess the outlook as fiscal policy becomes more supportive in areas such as infrastructure and defence.

The valuation of German equities is another element in the investment debate. European markets have generally traded at lower valuations than major U.S. equity benchmarks, although the gap varies considerably across sectors and companies. For investors comparing markets, valuation levels remain one of several factors alongside earnings expectations, economic growth, interest rates and geopolitical risks.

Recent trading has also demonstrated how sensitive European equities remain to changes in global sentiment. Germany’s DAX fell 1.6% during a broad European market decline on September 18, before rebounding 1.1% on September 21 as banking and technology stocks supported the wider market.

The outlook for German stocks therefore depends on a combination of domestic and international forces. Political developments remain relevant, but the international reach of major German companies can provide a degree of insulation from purely domestic pressures. At the same time, higher defence and infrastructure spending could alter the economic environment for industrial companies, while investors continue to monitor corporate earnings, valuations and global demand.

Rather than being determined by a single political or economic factor, the performance of German equities is likely to reflect the interaction between government spending, industrial activity, global markets and the ability of Germany’s major companies to maintain growth across international markets.