Public Equities

Uncovering Growth & Innovation in Germany's Hidden Champions

October, 2021 – 5 min read
Across the German equity market, small and medium-sized companies that are leaders in their fields, and have access to innovative technologies, look well-positioned for long-term growth.

Following a volatile and unpredictable 2020, German equities have been on a steady rise this year. Overall, the asset class remains supported by the recovery in both the German and global economies, which have been underpinned by the release of pent-up demand post-lockdown, robust public sector investments and a more optimistic export outlook. In fact, German manufacturing has significantly rebounded since the onset of the pandemic, with the Manufacturing Purchasing Managers Index remaining in expansionary territory since July 2020. At the same time, progress in vaccine deployment across Europe and the resultant reopening of economies have been supportive.

Despite this positive backdrop, there are a number of risks on the horizon. Inflationary pressures are increasing, driven by strong demand and global supply constraints—such as in the energy sector, where oil and gas prices have risen significantly. Markets are also contending with the prospect of monetary policy tightening, as a number of developed market central banks look to taper asset purchase programs and begin to think about raising interest rates in response to robust demand and inflationary pressures. There is also some uncertainty around a new government in Germany, following the General Election at the end of September. As a result, pockets of volatility are likely to impact markets in the near term.

However, we believe the German equity asset class remains supported and will continue to present long-term opportunities for investors. In particular, we see value in small and medium-sized companies with a strong long-term growth potential and exposure to innovative technologies—which we believe are attractively valued in the current environment.
 

Attractive Valuations & Robust Earnings

Since the second half of 2020, the relative valuation of German equities versus the broader European market has been on a downward trend. And earlier this year, the relative valuation fell below its long-term (5-year) average—suggesting that the asset class is undervalued by the market. At the same time, German corporate earnings are expected to experience a strong rebound this year, from the pandemic-affected lows of 2020. In fact, over the next couple of years, German corporate earnings growth is forecast to continue to outpace Europe. As a result, we believe the German equities asset class looks attractive.

Want to read the full article?

View PDF

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Any investment results, portfolio compositions and or examples set forth in this material are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this material No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments. Prospective investors should read the offering documents, if applicable, for the details and specific risk factors of any Fund/Strategy discussed in this material.

Barings is the brand name for the worldwide asset management and associated businesses of Barings LLC and its global affiliates. Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, and Baring Asset Management Korea Limited each are affiliated financial service companies owned by Barings LLC (each, individually, an “Affiliate”).

NO OFFER: The material is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service in any jurisdiction. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This material is not, and must not be treated as, investment advice, an investment recommendation, investment research, or a recommendation about the suitability or appropriateness of any security, commodity, investment, or particular investment strategy, and must not be construed as a projection or prediction.

Unless otherwise mentioned, the views contained in this material are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Individual portfolio management teams may hold different views than the views expressed herein and may make different investment decisions for different clients. Parts of this material may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this material is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any service, security, investment or product outlined in this material may not be suitable for a prospective investor or available in their jurisdiction. Copyright in this material is owned by Barings. Information in this material may be used for your own personal use, but may not be altered, reproduced or distributed without Barings’ consent.

Related Viewpoints