Investors who buy the DAX on its recent lows could see the stock index rally 50 percent over the next year, one analyst told CNBC.
The DAX has seen a 9 percent drop from its June 20th intraday high of 10,050.98, trading at 9,124.86 this morning, providing a buying opportunity for traders. Wednesday saw the index drop 10.15 percent, hitting a low of 9,030.27 points.
"I think quite frankly if you buy the DAX at its low point in the second half of the year and then you sell it at the high point next year I think the difference will be 50 percent," Beat Wittmann, CEO of TCMG Asset Management, told CNBC in a TV interview.
"Buy the DAX within the next one or two months and keep it and you will do tremendously well because Germany is highly geared to the global economy where I'm very positive. So there's no canary in the coalmine long term."
Macroeconomic picture 'peaked'
German stocks have been hit after a slew of economic data over the past two days pointed towards a weaker economy. German factory orders fell 3.2 percent month-on-month in June—the largest decline since September 2011 while industrial output rose a mere 0.3 percent, below the 1.3 percent forecast by economists.
Geopolitical tensions are also overhanging the European economy, with Russia retaliating on Thursday with sanctions of its own. Prime Minister Dmitry Medvedev said European food imports had been banned. Over the longer term, the DAX has been particularly hard-hit by developments in Russia, as it is dominated by companies that are dependent on Russian energy.
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Coupled with a deteriorating euro zone macroeconomic picture, in which Italy slid into its third recession since 2008, analysts said Germany equities will not see a big upside.
"The macroeconomic picture peaked in the first quarter of this year for the euro zone and you have these awful numbers from Italy. The factory numbers out of Germany show that growth is softening," Mike Ingram, market strategist at BCG Partners, told CNBC in a phone interview.
ECB stimulus?
All eyes are on the European Central Bank (ECB) as it holds a monetary policy meeting on Thursday. While the market thinks the ECB will hold fire on any sort of policy action, analysts have not ruled out some form of quantitative easing (QE) in the future which could boost liquidity in the currency bloc with the hope of spurring bank lending to the economy.
Any further stimulus could be a big boost for European equities, and the DAX could see an uplift, according to Brenda Kelly, chief market strategist at IG, told CNBC in a phone interview.
"The economy in Germany is looking a bit weaker. But if we do see some sort of stimulus it could be the driving force behind German stocks," Kelly said.
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"But at the moment the fundamentals show that we could some further downside."
Weaker euro key
Many troubled euro zone countries including Italy and France have complained that a strong euro currency is making them less competitive. Meanwhile, an improving economic picture in the U.S. could see the Federal Reserve raise rates interest rates next year, helping to strengthen the dollar and push the euro weaker and the DAX higher, according to one analyst.
"If our base case is right and the US economy continues to grow, rates will gradually rise, acting as a release valve for all the upwards pressure on the Euro," Andrew Goldberg, global market strategist at JPMorgan Asset Management, told CNBC via email.