Ger­man taste for stocks risks sour­ing on first losses since 2011

The Star Malaysia - StarBiz - - Foreign News -

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

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