German equities: now even cheaper

New measures announced by Chancellor Gerhard Schröder will boost after-tax profits in Germany this year. James Ferguson goes bargain-hunting

Last week in MoneyWeek, Euan Stuart and Sven Lorenz argued that Germany was "the best buy in Europe". Their argument was twofold: that slow-growth economies have historically made for the best investment returns, and that Germany is "one of the cheapest stockmarkets in the Western hemisphere". To these two attributes, we can now add another: the boost to net profits to come from Chancellor Gerhard Schroder's corporate tax cuts.

Stuart and Lorenz, citing the ABN Amro and London Business School analysis of the last 105 years of equity and bond prices, argued that there are several reasons why a slow-growth economy's stockmarket outperforms, such as high pay-outs, pressure for corporate restructuring and cheapness. But I'd say government hand-outs are just as important. Last week, in response to a 72-year high unemployment rate of 12.6%, Chancellor Schroder initiated what Kate Connolly, writing in The Daily Telegraph, called "an emergency raft of reforms aimed at boosting growth".

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