DAX Averse

Not Taking Stock

Börse Frankfurt
The Frankfurt stock exchange.
  • Why it matters

    Why it matters

    Traditionally risk-averse Germans have steered clear of stocks, despite a booming German economy. That has left the profits to foreign investors, including U.S. and British funds.

  • Facts


    • Only 13.8 percent of Germans are directly invested in the stock market.
    • Foreign investors have increased their ownership of 30 DAX-listed companies from 35.5 percent in 2001 to 54 percent in 2014.
    • The share prices of DAX companies have almost doubled in the same period.
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The brave may not own the world, but they do collect healthy profits. Babette Riechmann, 45, is one of the brave. She lives in a small house within view of the Bayer plant in Dormagen, near Düsseldorf, and she has many friends who work there. Three-and-a-half years ago, she bought 100 shares in Bayer at €53.25 ($67.75) a share. Ms. Riechmann, a mathematics and physical education teacher, recently read that Bayer’s share price rose by 5 percent on news that it planned to list its plastics business, making the Leverkusen-based group suddenly the most valuable company in Germany. The value of Ms. Riechmann’s investment had also increased a little more as a result.

She sold her shares for €11,250, earning a profit of €5,925, a gain of almost 110 percent. “No one has ever lost money on profit taking,” she concludes.

What’s next? Ms. Riechmann intends to keep her stock profits in her bank account until the next time the DAX, Germany’s blue-chip stock index, takes a dive. In her opinion, shares in most other German corporations are currently overpriced. She also doesn’t want to repeat the mistake she made with her Deutsche Telekom shares. She received 100 shares in the company for the equivalent of €14.31 a share, but when the value of her investment had declined to €10,400, she became unnerved and sold the securities in 2004, earning a profit of only €1,365.

“German private investors hardly focus on stocks at all, and very little is invested in German mutual funds.”

Franz-Josef Leven, Director of the German Share Institute (DAI)

Like many Germans, Ms. Riechmann was reluctant to invest in the stock market once again. Nevertheless, she is an exception in many respects. Unlike most Germans, she invests a portion of her money in stocks. She buys when prices are low and sells when they are high, and she seems to have developed a knack for it recently.

A schizophrenic situation has taken hold in the markets. Shares in many German companies are trading at record-high prices, providing investors with triple bang for their buck: ample capital gains, decent divides and an optimistic outlook.

A market miracle, made in Germany.

But there’s a problem. The people profiting from the boom on the German stock market are not the many Germans who became agitated over the miniscule returns on their savings accounts and life insurance policies, but primarily foreign investors. According to calculations by Handelsblatt, foreign investors have increased their share in the 30 DAX-listed companies from 35.5 percent in 2001 to a record 54 percent today. The share prices of these 30 companies have almost doubled in the same period.

It’s an enormous lost opportunity for Germans: They are creating a prosperity which is being skimmed off by foreign investors.

Financial Assets of Germans-01


Jens Weidmann, president of the German central bank, the Bundesbank, notes that Germans should be more active in managing their assets. “As a shareholder in a company, the citizen benefits from the same interest environment that adversely affects him as a saver.” Franz-Josef Leven, director of the German Share Institute (DAI), says: “German private investors hardly focus on stocks at all, and very little is invested in German mutual funds.” According to DAI calculations, more than 600,000 private investors turned their backs on the stock markets in Germany last year. Only 8.9 million Germans are directly or indirectly invested in stocks. This is 13.8 percent of the population, the smallest percentage of any industrialized country in the developed world.

More than half of U.S. citizens own stocks, and the percentage of people who own stocks directly is two-times higher in Norway, Sweden and Finland than in Germany.

As a result, primarily American and British investment and pension funds like Blackrock, Vanguard and State Street are profiting from the German stock market boom. Sovereign wealth funds from countries like Norway and China are also highly active. Unlike the risk-averse Germans, they know where the yields are. At Bayer, one of Ms. Riechmann’s investments, at least 72 percent of shareholders are from abroad. Foreign investors hold 71 percent of shares in insurance giant Allianz, which has seen its share price double in the last three years.

Why are the Germans avoiding a form of investment from which others are deriving substantial profits? What’s the source of this “German angst?”

Foreign and Domestic Shareholders in DAX Companies-01 (2)


Germans have always had a difficult relationship with stocks. When in 1959 the then Minister of Public Holdings Hermann Lindrath introduced a program dubbed “popular capitalism,” citizens were skeptical. Only 200,000 Germans bought shares in Preussag, which was partially privatized under the program. It was only with the Volkswagen initial public offering in 1961 that interest in stocks began to increase, with 1.5 million Germans buying shares in the automaker. The stock markets crashed a short time later.

After that, whenever Germans abandoned their reticence toward shares, bear markets took over and prices declined. The biggest trauma began with the listing of Deutsche Telekom in 1996. Actor Manfred Krug, who played a police detective in the popular TV series Tatort, was featured in an ad campaign for the IPO. The reaction among German investors was euphoric. The share price reached €104 in 2000, but then it collapsed. Although the price rose by an impressive 37 percent in 2013, it’s still a long way from its former high. Despite a 90-percent price decline, 1.6 million investors, almost all of them German, remained loyal to the Telekom share. No other German company has garnered the support of so many German shareholders.

Things would only get worse for the Germans. Around the turn of the millennium, they became all but intoxicated with stocks as a form of investment. Anything involving the Internet was identified as an investment target, until the bubble burst.

Germans lost a lot of money as a result, and stocks lost their appeal.

If Germans had been more open to risk and adjusted their investment strategy to the new conditions in low interest-rate markets, they could have avoided losses.

This is still the case today. The younger generation, in particular, makes a wide berth when it comes to stocks. In 2001, 17.5 percent of Germans aged 20 to 29 were invested in stocks or mutual funds, compared to only 8.7 percent today. A team of analysts with Allianz has calculated that European central banks’ low interest-rate policies have already cost German private households €23 billion since 2010. In conducting their analysis, the experts compared interest rates between 2003 and 2008 with rates since 2010.

If Germans had been somewhat more open to risk and adjusted their investment strategy to the new conditions in low interest-rate markets, they could have avoided a large portion of this loss. The low rate of wealth accumulation among Germans is partly attributable to their emphasis on savings accounts instead of more speculative investments. While global wealth grew by 10 percent in 2013, Germany, with only 4-percent growth, was near last place in terms of wealth accumulation. The United States, with its strong stock market culture, led the pack with an average capital gain of 12 percent in 2013.

Ulf Sommer reports on the interface between companies and the financial markets. Contact him: sommer@handelsblatt.com.

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