CountriesIntermediate· 7 min read

Investing in Germany

The one thing to remember

Germany is a leveraged bet on global manufacturing demand and on cheap energy.

The question

Understand what the DAX is really exposed to.

Figure

The same argument as the text, as a chain. Each step is what makes the next one possible.

Figure

Domestic consumers and firms

70%

Foreign exporter cuts price

20%

Importer absorbs margin

10%

The importing company writes the cheque to its own government. The foreign producer is never billed. Most of the cost then lands on domestic buyers.

1
It is an export index
Cars, chemicals, machinery, industrial software. These companies sell abroad, and a great deal of it to China. German industrial earnings are therefore a read on Chinese demand more than on German consumers.
2
Energy is a direct input, not an overhead
Chemicals and heavy industry are among the most energy-intensive businesses on earth. A change in the gas price is not a cost pressure for them, it is a change to whether the plant is economic to run at all.
This is why the German industrial base reprices on energy news that barely moves a services-led market like the UK.
3
Codetermination changes the incentives
German supervisory boards include worker representatives by law. The practical effect is that restructuring is slower and job cuts are harder, which cuts both ways: more stability, less agility.
4
And tariffs land here first
An export economy is maximally exposed to trade barriers. When tariff rounds begin, German industrials are where the pain shows up early, regardless of who the tariff was aimed at.

Try it

What cash is worth laterInteractive

Inflation3%

Years25

£100 becomes

£48

Purchasing power lost

52%

Half gone after

23 yrs

At 3% a year, money loses roughly half its purchasing power in 23 years. Sitting in cash is a decision, and it has a cost.

You have got it when

You can explain why the DAX falls on weak Chinese data.

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