With the eurozone still undergoing various debt problems and austerity measures taking hold in such countries as Ireland (NYSE:EIRL) and Spain (NYSE:EWP), Europe has not been an ideal investment destination over the past few months. However, the weakness in the euro currency has created a few spots. Nations that rely on exports have been thriving in the lower euro environment. One in particular, could power portfolios for years to come.
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The Fourth Largest Economy
While much press has been given to China moving up the economic ladder, solidly in the number fourth spot overall and Europe's largest, Germany has quietly become an export giant. Recent data from the Germany's Federal Statistics Bureau shows that exports have grown at a 30% rate versus a year ago. The nation owes much of this growth to emerging markets which covet Germany's sound reengineering. German industrial goods, chemicals and infrastructure products are finding their way to Latin America and parts of Asia. Growing middle classes in China and India have created a surge in demand for German luxury automobiles. Sales of luxury Mercedes to China have tripled over the course of the year; sales to India more than doubled. This rise in export-driven growth has lowered unemployment in the nation in contrast to the rest of the eurozone and the United States. Unemployment in Germany is now lower than it was when the crisis began.
Overall, the German economy grew by 2.2% in the quarter ending in June. This is the best performance since Germany was brought together via the fall of the Berlin Wall. This quarterly figure dwarfed the most bullish analyst forecasts. Keeping with its fiscally sound principals, its government has reduced its budget deficit by 20%, which stands at 65 billion euros or $81 billion. On a debt-to-GDP basis that is far less than the United States, U.K. and Japan.
Aside for the recent short-term catalysts, investors may want to add a touch of German stocks for the long term. Germany has traditionally outperformed the other big boy on the block, the United Kingdom (NYSE:EWU). The annual average five-year return for German stocks was 5.28%, compared to negative 2.28% for the U.K.
The easiest way to add the German economy to a portfolio is through the iShares MSCI Germany Index (NYSE:EWG). With more and more of the nation's ADRs moving to the pink sheets, this ETF gives access to such companies as steel maker ThyssenKrupp or utility E.ON AG, which no longer trade on the big boards. The ETF follows 51 of the largest German companies and charges 0.55% in expenses. Shares of the ETF yield 1.45%. Focusing on small- and mid-cap German equities, the closed-ended New Germany Fund (NYSE:GF) offers a way to play the faster moving stocks within the nation. The New Germany Fund currently trades at a 9% discount to its NAV.
There are only a handful of German equities remaining that have dual listings on the NYSE or Nasdaq exchanges. Most have chosen to relocate to the pink sheets where expenses are much lower. However, the remaining are some of the biggest companies in their fields. Siemens AG (NYSE:SI) represents one of the largest electrical and engineering firms on the planet, with operations in infrastructure, healthcare and electronics. Oracle (NASDAQ:ORCL) rival SAP AG (NYSE:SAP) is number two in productivity and data mining software. Finally, Fresenius Medical (NYSE:FMS) is one of the leading operators of global dialysis centers. (For more on Fresenius Medical, Please See Investing for the Diabetes Epidemic.)
With Europe still going throw is austerity pains, some nations are shaping up to be better buys than others. As one of the top exporters of capital and industrial goods, Germany should be on investor's radar. The nation has thrived during the recent debt crisis and with a falling euro, has positioned itself as the leader in Europe. Investors may want to consider adding Germany through any of the ETFs or individual stocks previously mentioned. In addition, the strength of Germany is helping power broad eurozone ETFs such as the SPDR DJ EURO STOXX 50 (NYSE:FEZ) from their lows. (To learn more, see The German ILO: Why It Matters To Traders.)
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