Germany the ‘jewel in the crown’
Robert Smith, investment manager of the Baring German Growth Trust, said the eurozone economy represents a strong opportunity for investors in 2016, with Germany the ‘jewel in the crown’.
Corporates in Germany are expressing an optimistic view for the year ahead, forecasting revenues to show a year-on-year increase off the back of growth in core developed markets such as Europe and the US.
The current European market contains some highly valuable stocks. Investors have the opportunity to buy into quality European enterprises and take advantage of sustainable growth at much cheaper prices compared to even just a few weeks ago.
We are particularly optimistic on Germany. As a far larger exporter to its European counterparts than any emerging market, I do not expect it will notice the reduction in emerging markets’ imports as we believe the growth of the Eurozone economy will continue to accelerate. Government spending, driven by immigration, is also another positive boost for the German economy.
In particular, the technology-led ‘Industry 4.0’ transformation programme in Germany – a step change in efficiency brought about by putting machinery online for remote operation and maintenance – is opening up significant new opportunities for investors across all sectors.
Example stocks include Adva Optical, which provides telecommunication switchgear; and Cancom, a provider of cloud infrastructure.
Adva Optical is benefitting significantly as demand for switchgear grows rapidly with the mass move online and the commensurate rise in data sent by machines to datacentres.
Cancom has developed an innovative process to help companies manage this rise in data and at the same time also provides its own cloud environment that companies can chose to use.
In terms of portfolio combination, consumer discretionary spending in Germany is dominated by the automotive sector, which is showing no signs of recession and we believe that the growth in Europe this year will outweigh any slowdown elsewhere in the world.
The industrial and IT sectors are very stock-specific, but we are positive on industrial investment outside of oil and mining and we see good growth opportunities in IT, especially with the transition to cloud technology.
Among the world’s major economic blocs, Europe tops Smith’s overall market view, driven by higher consumption, cost reductions in raw materials, and relaxed monetary conditions in 2016.
The falls in global oil prices seen across much of the past 12 months are seen as good news for the wider European region. Germany is set to benefit strongly from this Eurozone recovery.
The Baring German Growth Trust has returned 19.9% in 2015.
As at end December 2015, the fund’s equity exposure in Germany was over 90% and the major sectors that the fund has invested in were industrials, consumer discretionary and information technology.