The powerhouse German economy is driving companies towards offering investors strong growth that is unlikely to fall back despite the problems of the eurozone.
Buying German equities is tipped as attractive by fund managers at Barings Asset Management as share prices remain attractive and offer potential good earnings.
Looking back five years, German exports as a share of eurozone exports have grown from around 31% at the start of 2007 to 33% at the beginning of 2012, says the firm.
Germany’s share of eurozone exports to countries outside the European Union has increased from 23% to more than 25% in the same period.
The signs, says Barings, show growth is set to continue as German goods and services are sought after by customers worldwide.
Strong equity performance
Comparing German equity performance against companies in other European nations also gives a favourable indicator of strong future performance.
In the three months until the end of October, the DAX 30 index gained 5.1%, against 3.8% for the MSCI Europe ex-UK index over the same period.
Rob Smith, manager of the Baring German Growth Trust, said: “We believe the outlook for German equities is boosted by an improvement in economic and corporate fundamentals for Europe’s biggest economy, even though equity markets on the continent have faced a tough 2012.
“Germany has several positive macroeconomic drivers, including low unemployment, a high savings ratio, impressive corporate balance sheets, and competitive in-demand exports desired in the States and China.
“Germany’s share of exports outside Europe compares favourably against rival economies.”
Key themes for investors
Smith suggests investors should look towards shares in small to medium firms to diversify their portfolios – and should specifically consider sectors like financial services, healthcare and IT.
“Looking ahead to next year, some key themes are emerging that are attractive to investors. These will only get better as the US and Chinese economies improve,” said Smith.
“One factor is automotive suppliers switching their operations to emerging economies. This makes production more cost-effective – especially in China, which is importing German robot technology to improve production lines.”
He cites Duerr AG as one example of a German company with a strong Chinese market that is finding markets for automated production equipment.
Barings also sees opening s for firms like Duerr in retooling the US economy as corporations strive to drive down costs as production picks up.
