Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Germany, The One Economy Investors Can't Afford to Ignore

Companies / Investing 2011 Jan 20, 2011 - 08:02 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleMartin Hutchinson writes: U.S. investors tend to regard the European Union as a region of low growth, an area of the world that has little to offer to non-EU investors.

For much of the EU, this is true (I've never found much of anything that's investment-worthy in Italy, for example).


Overall, however, this anti-EU sentiment is pretty unfair.

In fact, it's now becoming increasingly clear that even U.S. investors would be mad not to have some of their money in Germany.

A Mixed History
To maximize profits, you need to invest in the great manufacturing economies of Asia - not just China, but also Korea, Taiwan, Singapore, and even Japan. You need to have money in the major commodity-producing sectors, which take full advantage of the "funny money" monetary policies that are in force around the world - and that are causing commodity prices to swell in bubble-like fashion.

And to really maximize the profit potential of your portfolio, you need to have money in Germany - at least 5% to 10% of your overall portfolio.

Although Germany seems to occupy a kind of "show-me" status among investors today, it was once a favored investment destination for the investors who understood even then how important it was to diversify into international markets. That was especially true prior to the July 1990 reunification that saw the former East and West Germany merge into a single entity.

In the 1950s and 1960s, the former West Germany enjoyed truly stellar growth under wise Chancellor Konrad Adenauer as it recovered from World War II, and from the 100 years of rule by the economically illiterate governments that had guided it in the previous century.

If you're a free-marketeer, you probably prefer Bismarck to Kaiser Wilhelm II, "Kaiser Bill" to the socialists of the 1920s Weimar Republic, and the Weimar guys to the Third Reich (though your overall vote would go to "none of the above").

After the 1960s, Germany's growth rate slowed. But after 1971, the country's currency took off against the U.S. dollar. So if you were an investor in Germany, you still made out from both profit growth and from currency appreciation.

Then came reunification. The Berlin Wall fell in 1989 and the two Germanys were reunited the following July.

Germany's Economic Resurgence
Mistakes were made in setting up the union and for the next 15 years the combined German government poured subsidies into the former East Germany at a rate of about $100 billion annually - equal to about 3% of the entire country's gross domestic product (GDP).

The upshot: German growth slowed to a crawl, and impatient foreign investors invented the myth that Germany lacked entrepreneurship and was too socialist to do well in a free-market world.

Since 2005, however, Germany's growth has re-accelerated. This should not have surprised anybody; the costs of re-unifying the country were always likely to be finite and the dynamic West Germany was around four-fifths of the total in terms of population and even more in terms of GDP.

German labor costs per unit of output were the highest in the EU at the formation of the Eurozone. But they fell by more than 20% over the next 10 years, making Germany highly competitive internationally.

As the costs of East German unification began to decline, the government undertook tax reforms, reducing corporate taxes and high-rate individual taxes to internationally competitive levels. Then, unlike almost every other country when the 2008 crisis hit, the German government avoided the "stimulus" folly, with the finance minister - at that stage a Social Democrat - describing it as "crass Keynesianism."

As a result, the German economy has recovered much more strongly than most. Unemployment has remained limited, at 7.5% currently compared with a peak of greater than 10% in the United States. And Germany's GDP has begun advancing at a fairly healthy clip: The growth rate of 3.6% in 2010 far exceeds the expected level for the United States, Japan, or the rest of the EU. This is the highest growth since pan-German data began in 1991, and was accompanied by a 9.4% rise in corporate spending on equipment, again well ahead of Germany's competitors.

In other words, Germany appears to have reverted to its healthy-growth proclivities of the 1980s and before. And its relative strength is likely to continue.

Unlike the United States, Germany runs a healthy trade surplus, indicating that its industries are highly competitive in world markets. German companies outsource - but generally to Eastern Europe, rather than Asia. That represents sound strategic management, since the German skills of extremely high precision manufacturing, taut workforce discipline and tight process control cannot easily be applied in an unfamiliar culture far from home.

Then there's valuation. Germany's stock market is currently cheaper than its U.S. counterpart (15 times earnings, compared to 17 times for U.S. stocks, according to The Financial Times) - even though the German economy is growing at a faster pace.

The difficulty is how to invest.

How to Reap the Predicted Payoff
Relatively few German companies have full American Depository Receipt (ADR) listings in the United States. That's partly because the U.S. Sarbanes-Oxley Act requirements are expensive, making it prohibitive for German companies to list here. Plus, German companies have an excellent investor base, both domestically and through London and the rest of the EU.

I have found one tech company in my Merchant Banker's Alert advisory service that I think is pretty special. But German companies with ADRs are generally very large and operate in traditional sectors, without much growth. Germany's unique capabilities come to the fore best in medium-sized companies, generally with family management, which may be listed on their domestic market, but not in New York.

That leaves funds. And fortunately, there is one very good choice here.

There is an exchange-traded "country" fund (ETF) for Germany, the MSCI Germany Fund (NYSE: EWG), but that also has heavy exposure to the slow-growing behemoths.

Thus, my favorite right now is a closed-end fund, the New Germany Fund Inc. (NYSE: GF). This $300 million fund is run by Deutsche Bank AG (NYSE: DB) and has the additional advantage of trading currently at a 10% discount to net asset value (NAV) - so you get $100 of asset exposure for a $90 investment.

The fund specializes primarily in medium-sized and smaller German companies, which is just where we want to be: Those are the companies that have the biggest exposure to the fast-growing domestic economy; they're also the most innovative.

Actions to Take: If you haven't already, it's time to invest in Germany, a faster-growing and better-managed economy than its U.S. rival, and one that can provide a very nice payoff.

Because of restrictive U.S. regulations, there aren't many ways for U.S. investors to buy into German firms via U.S. exchanges. But there is a closed-end fund that represents an excellent choice. This investment, the New Germany Fund Inc. (NYSE: GF), is a $300 million fund run by Deutsche Bank AG (NYSE: DB). It is currently trading at a 10% discount to NAV.

The fund specializes in the very companies we want to invest in - the medium-sized and smaller German companies that are the most innovative, and that have the biggest exposure to the fast-growing domestic economy.

Source : http://moneymorning.com/2011/01/20/investing-in-germany-the-closed-end-fund-to-buy-now/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules