Study finds Germans prefer home markets – for now
Most German investors say China is tomorrow‘s superpower, versus a negligible proportion who say Germany is preeminent, but the vast bulk still prefer to invest locally.
Not even today’s superpower, the US, can draw more than 9% of their investments, according to a study in August, commissioned by Schroders and conducted by GfK Finanzmarktpanel of 1034 households.
Indeed, around half (45%) named the US as having the highest country risk. Germany had the lowest (2%). China with 6% was also low.
Respondents‘ view of riskiness has more than doubled for the US over the past year, while it fell from 8% for China.
Europe ex-Germany is now regarded as roughly as risky as Latin America.
Schroders said: “Diversification opportunities remain un-used. Although investors realise that opportunities lie beyond Germany and Europe, their approach to investing does not accord to this.”
Almost 80% of respondents are invested in three or fewer asset classes, including real estate.
Germans‘ home market still draws 71% of their investments, whereas just 4% heads to China’s capital markets.
However, the proportion going to Germany is falling, from about 80% each year since 2008, while China has increased from about 3% in 2009/2010.
Moreover, the proportion saying they will not invest in Germany over 24 months has almost doubled, from 10% last year to 19% now. The proportion who say they will certainly allocate to Germany by August 2013 fell from 72% in 2010 to 58% now.
This cooling may be sensible, because German shares as represented by the MSCI German 10/40 index expressed in euros had the highest three-year volatility, of about 24%, from eight major market indices. Only India (MSCI India) ranked higher.
MSCI German 10/40 also showed the second lowest returns, of about -5.5%. Only the MSCI Europe index, with about -6.5%, underperformed it.
The statistics collected relating to non-German capital markets suggest, overall, Germans might do little investing over two years.
For Europe ex-Germany, pan-Asia, Russia, India and the US, those who plan absolutely not to invest within 24 months outnumber those who absolutely will.
Some 46% cite risk as reason not to invest in distant markets, while 53% mention lack of knowledge. Only 18% say the possibility of recession in the relevant market deters them.
German household investments in emerging markets overall, at 14%, is around where it was in 2008 (12%).
The research found Europe ex-Germany accounted for 35% of German households‘ investments, and was the next most popular destination after Germany itself.
Some 40% of respondents said it made sense to invest in China in the coming two years, but more (44%) said it did not make sense to invest there at all.
By contrast, only 18% said it was not sensible to allocate to America. However, perhaps given its current headwinds, only 10% plan to do so this year. Five-fold more plan to do so only in the next one or two years.
In terms of asset allocation, property is cited most often (32%) among the alternatives to hedge against inflation. Quality global equities, commodities and inflation-linked fixed income come next (each cited by 10%), then energy equities and gold (9%).