German taste for stocks risks souring on first losses since 2011

FRANKFURT: Germans, long known for exceptional caution with their cash, have been quietly shifting into stocks and funds from traditional savings accounts in recent years. Now that risks snapping back.

A combination of weaker markets and firmer consumer prices means inflation-adjusted returns so far this year are negative for the first time since 2011, according to Germany’s Bundesbank.

With the European Central Bank expected to start raising interest rates in late 2019 -which some analysts say could spur further market declines -- German households may opt to return to safety.

As in many other countries, Germany’s retail investors have historically made the mistake of buying shares when they were expensive and selling after they became cheap.

These buy-high, sell-low missteps meant stocks were never fully integrated into wealth building, prompting a quick retreat when losses pile up.

“The problem is that Germans have always been very procyclical about investing,” said Franz-Josef Leven, deputy director of lobby group Deutsches Aktieninstitut (DAI). “I can imagine that many retail investors will switch back out of equities once interest rates go up. Not all of them, but a large part.”

Bundesbank President Jens Weidmann highlighted the move toward stocks in a speech last week, saying his “rather conservative” compatriots put more than 26 % of all their financial assets into equities and investment funds in 2017. That’s up from just 6 % four years earlier.

A downturn could reverse that trend, and investment losses could sap spending power among Germany’s rapidly growing ranks of retirees, which have little to fall back on. — Bloomberg