|
Published: August 10, 2010
While the United States, China and Japan duke it out for the
top three economic slots in the global
economy, Germany has settled in as Number four. And from
where investment pros sit in Bonn, that's a pretty nice place to
be. While China wrestles with possible bubbles, Japan tackles
deflation and the U.S. frets about its government spending,
Germany has spent much of the last few years away from the
headlines. But behind the scenes, the country is undergoing a
powerful export-led transformation that should catch the
attention of investors here in the U.S. as well.
According to just-released data from Germany's Federal
Statistics Bureau, German exports are currently rising at a +25%
to +30% clip compared to a year ago. That's a remarkable feat
when considering that most of its major trading partners appear
to sickly to absorb all that trade. The export surge is due to a
bit of methodical planning and a bit of serendipity. To be sure,
German policy planners have always made sure that business
conditions remain favorable by providing a very strong economic
and trade infrastructure.
And labor, which is well-compensated, shows a great deal of
flexibility. That's why Germany's the world's second-largest
exporting nation behind China, even though it lags the U.S. and
Japan in terms of total
GDP. All told, Germany exported 86.5 billion Euro
($113 billion) worth of goods and services while importing
72.5 billion ($95 billion).
Normally, trade surpluses should force a
currency to strengthen (except in China, which buys back
massive amounts of foreign currencies and bonds to offset that
impact), but Germany has the good fortune of sharing a common
currency with its distressed neighbors to the south. As the euro
has weakened, the country has benefited from improved pricing
power and an expansion in profit margins. Of equal importance,
the good times should last for a while as European countries vow
to stand by the euro. Since the lagging states are unlikely to
see a rapid change in fortunes, the euro should stay weak for a
while to come.
As an added benefit, Germany appears to be making major headway
in reining in its budget
deficit. In early July, the government in Berlin announced
that the deficit will be around 65 billion Euro ($81 billion),
which is roughly -20% less than previously thought. Government
economists expected the deficit to shrink another -10% to -15%
next year as well. As a percentage of GDP, that deficit is far
smaller than found in countries like the U.S, the U.K. and
Japan.
A Healthy economy gets attention
Investors are starting to put Germany on their radar. The
country's
DAX index has risen nearly +15% in the past six months,
compared to a +6% gain for the S&P 500, yet shares remain below
levels seen in the summer of 2008 when global markets started to
swoon. Many key German stocks are bargain-priced.
Ways to Play
Germany's SAP (NYSE: SAP) is the equivalent of
Oracle (Nasdaq: ORCL) here in the U.S. The company makes a
wide range of software productivity programs that can be
deployed throughout a large enterprise. A recent acquisition of
U.S. software firm Sybase is expected to help SAP make further
inroads in the U.S. while expanding its suite of software
services in various European markets. The deal, which just
closed, should have only a modest impact on this year's results
but should help fuel double-digit sales growth in 2011 with
profit growth in the +15% to +20% range. To the extent that U.S.
tech spending finally gets going in 2011, then those growth
forecasts could be nudged up a bit. Shares trade for a
reasonable 14 times projected 2011 profits.
Investors looking for exposure to Germany through certain
sectors should also check out Deutsche Bank (NYSE: DB) in
banking and Siemens (NYSE: SI) in engineering.
Action to Take --> From this
distance, it's hard to pick Germany's winners and losers. Why
not buy the whole stock market? The iShares MSCI Germany
(NYSE: EWG) exchange-traded fund gives nice broad-based
exposure with minimal fees. Deutsche Bank also sponsors the
New Germany Fund (NYSE: GF), a
closed-end fund that focuses on small and
mid-cap companies in a range of industries.
Even as you focus your investments here in the U.S., or in
high-growth markets in Asia and Latin America, don't forget
about Germany. The country's steady and stable economy has never
before been able to benefit from such a weak currency. If
current trends are any indication, export-fueled growth should
be the investment theme for a while to come. Whether it's a
blue-chip or a closed-end fund, make sure your portfolio has
some exposure to this dynamic market.
-- David Sterman
Staff Writer
StreetAuthority |
