CAPE TOWN – Germany has become the undisputed economic powerhouse in Europe. With a reported GDP of a little over $3.7 trillion in 2013, it produces around $1 trillion more than its counterparts France and the United Kingdom.
The country’s stability since the financial crisis of 2009 has largely been what has kept the Eurozone afloat when many other economies in the region have been under pressure. Chancellor Angela Merkel has gained in stature as she has pressed fellow European countries toward reform and budget discipline.
However, Germany’s resilience began to waver in 2014. Economic growth stalled and even dipped negative in the second quarter of the year, raising concerns that the country has not been able to completely escape the regional malaise after all.
Nevertheless, investors have continued to see Germany as an important investment destination. It’s stock market is one of the ten largest in the world by market capitalisation, and is home to nearly 700 companies.
South African investors can access this market through the iShares MSCI Germany ETF, which is tradeable through the Standard Bank WebTrader platform. It holds 59 German shares, weighted by market capitalisation.
The largest of these are household names – Bayer, Siemens and Daimler. SAP, Volkswagen and BMW are also amongst theETF’s top ten holdings.
Just over 20% of the fund is held in consumer discretionary stocks, led by vehicle manufacturers. The second biggest sectoral allocation is the financials, which includes Allianz and Deutsche Bank.
The ETF is down around 7.5% over the last year, but has delivered an annualised return just shy of 7% over the last five years, and over 8% for the last decade. It is also not too steeply valued at a price-to-earnings ratio of just north of 16 times and a dividend yield of 4.24%.
Investors will however need to keep an eye on what happens in Russia, as many German companies have extensive operations there. Already exports to Russia have fallen notably due to sanctions and the drop in the value of the Russian ruble has hit company earnings.
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