Nele Husmann: Bank on Germany

02/13/2004 12:00 am EST


Nele Husmann

US Editor, Borse Online

"I think now is the time for profound reforms in Germany," says Nele Husmann, a leading authority on the German markets." I think the willingness is there right now for the country to make a new start." Here's her review of the German markets and some ways to play this trend.

"Economically, people in Germany have been miserable. We have 10% unemployment and 60% goes to the government. Demographics are a problem, as there are more and more older Germans and less younger people being born. But I now think they will surprise the world at how profoundly new changes will be undertaken. A leading investor recently said that if Germany was a stock it would be a turnaround candidate. And I think this is true. There are about 83 million people living in Germany and GDP per capita is about $27,000. In 2003, it had the best performing market of all industrial nations, up 37% in Euro terms, and a US investor would have done far greater. And while the German market was strong last year, if you compare the p/e multiples to the US, the stocks are still really cheap. The DAX index has earnings about even with the 2,000 level. The DAX historically tends to go in the same direction as the Dow in America, except that it tends to go to extremes. If the Dow rises 10%, the DAX will rise 20%. The index is very heavily weighted in banking and telecom.

"German stocks are very easy to buy for US investors. Many of the largest German stocks are traded on the NYSE, and they have the same commission costs and follow the same GAAP accounting US rules as American companies. So it is very easy for American investors to participate in these trends. One company we recommend for its revival potential is Deutsche Telekom (DT NYSE). We also like Allianz (AZ NYSE), the troubled insurance company. And among high quality German firms, we like Siemens (SI NYSE), a conglomerate. A good way for investors, who do not want to expose themselves to a single German stock, is the closed-end Germany Fund (GER NYSE), which is run by Deutsche Bank.

"I think the most interesting plays in the German market right now are the banks. Look at the deal between JP Morgan and Bank One. For the money that Morgan is paying, you could probably buy the entire private banking system in Germany. There are several great companies, and you can already see that many German firms are worried about US firms acquiring them. In particular, we consider two German banks as great takeover-plays: Deutsche Bank (DB NYSE) and Commerzbank (CRZBF Other OTC).Deutsche Bank is probably the best play for US investors, as it is listed on the New York exchange. I think the stock has a lot of potential, not only because it is beaten down by the trial against its CEO, Joseph Ackermann, but also, because the banking sector is ripe for consolidation. Deutsche will be part of that in one way or the other. The other German banking stock I like, Hypovereinsbank (HVMGF Other OTC), is a little riskier, but it has even more upward potential due to its exposure to Eastern Europe. It is listed as an ADR on the pink sheets."

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