'Tight' Germany Looks Good Value

'Tight' Germany Looks Good Value - at www.moneyweek.com - the best of the international financial media

Heinrich Heine, a German Jew who handled his language like a rapier, once expressed his anguish about Germany in a poem that became an eternal classic:

"Think I of Germany in the night...Then my peace of mind takes flight...Heinrich Heine (1797-1856)

As a resident of Switzerland, I dare say that my fellow countrymen are having similar thoughts...

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Our northerly neighbour is a country that we have always found slightly suspicious to begin with.

Germans may have the fabled purity law 'Reinheitsgebot' for brewing beer, but the Swiss traditionally are wine drinkers and tend to view themselves as more sophisticated and refined. Germans are ever so slightly looked down upon and relations have at times been somewhat strained.

This continues to this day. Germany is currently causing us a headache in operating our main airport, Zurich-Kloten. They are imposing restrictions on the number of flights that can pass over southern Germany while approaching Zurich.

And the consumer gloom prevalent in Germany has partially rubbed off on our economy... something we don't appreciate either. Then there have been the constant attacks on Swiss banking secrecy, which originated in the German Ministry of Finance because it is, by and large, German savers that are seeking refuge in our Alpine tax haven.

But Germany is worth investing in

Yet despite all our reservations, the Germans are also one of our main trading partners. They have been so in the past, they are in the present, and if you ask me, they most definitely will continue to be in the future.

About a third of Switzerland's imports are from Germany (what does that tell us about German export businesses?) and roughly 20% of our own exports cross the border over into Germany (again, there is something to be learned about Germany still being a major, major market).

To cut to the chase, we have long known what Anglo-Saxon private equity investors are only now catching up with. Germany still has many factors going for it and despite the general economic gloom it is a place well worth considering for investments.

To name just one example, with roughly €4,000bn in private savings and a savings rate of nearly 11%, Germans not only own one of the largest stashes of cash on the planet, they also keep adding to it faster than almost any nation on earth.

German savings have doubled in 15 years

Why did the Italian bank Unicredito take over the German banking major, HVB? Because there is business to be done in Germany, and lots of it!

The new CEO of HVB is Christine Licci, an Italian woman who previously set up Citibank Germany and managed to grow its consumer business by over 50% per year, for several years in a row.

Anyone thinking Germany is living off its past laurels should consider that German savings have doubled since 1990. How is that for a growing base of potential customers?

Of course, the media is much more focused on selling newspapers and, as we all know, gloomy headlines about Germany simply sell more of them.

But newspapers are also dreadful at pinpointing great investment opportunities. At the moment, talk about Germany is all about the people there being too tight to spend money on new cars, stereos and clothes.

But think of it this way...

A great buying opportunity

With a P/E of just 13.5, the German Dax is among the cheapest major stock markets of the Western world.

And share prices have been moving up this year with the Dax currently being up 14.1% since 1 January. The gains came without broad participation of retail investors.

Let the Dax rise a bit further on the back of the upcoming elections, and Germans will no doubt become a bit more interested again...maybe even greedy.

The money they then unleash onto their own stock market could propel the Dax to territory that we have not seen in the last 5 years.

The Dax is currently still 30% below where it was in the year 2000.

How is that for turning German tightness into a great buying opportunity for investors?

Beat Erni, for The Profit Hunter FileSwitzerland.