EWG: Germany's Structural Headwinds Persist

seekingalpha09-24

Germany faces chronic underinvestment, weak productivity, aging demographics, geopolitical tensions, and poor performance in key export markets like China.Analysts predict minimal economic growth for ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nEWG: Germany's Structural Headwinds Persist\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-24 21:23 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4722949-ewg-germanys-structural-headwinds-persist><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Germany faces chronic underinvestment, weak productivity, aging demographics, geopolitical tensions, and poor performance in key export markets like China.Analysts predict minimal economic growth for ...</p>\n\n<a href=\"https://seekingalpha.com/article/4722949-ewg-germanys-structural-headwinds-persist\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"EWG","symbol_name":"德国ETF-iShares MSCI","start_time":0,"source_url":"https://seekingalpha.com/article/4722949-ewg-germanys-structural-headwinds-persist","article_id":"2469499948","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/184876140/image_184876140.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2469499948","pubTimestamp":1727184209,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Germany faces chronic underinvestment, weak productivity, aging demographics, geopolitical tensions, and poor performance in key export markets like China.Analysts predict minimal economic growth for ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"EWG":"德国ETF-iShares MSCI"},"translate_title":"EWG：德国结构性阻力持续存在","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"EWG":0.9},"content_text":"Germany faces chronic underinvestment, weak productivity, aging demographics, geopolitical tensions, and poor performance in key export markets like China.Analysts predict minimal economic growth for Germany in 2024, with slight improvement expected in 2025-2026.Investors should remain cautious about German equities. The risk/reward outlook is skewed towards risk due to ongoing deindustrialization and other economic challenges Germany is facing these days.   Martin Wahlborg Almost a year ago, I published this article on the iShares MSCI Germany ETF (NYSEARCA:EWG), where I outlined key structural headwinds Germany is still facing to this day. If you don't read news about Germany and look at the performance of the German equities, you might think that the country is doing pretty well. However, the reality for German businesses is way more bleak than it seems. Even though there still can be some hope that Germany will eventually rebuild itself from its currently poor economic state, I'm becoming increasingly more skeptical about Germany's prospects in the medium term. At the same time, German equities can't be fully dismissed as there are German stocks that keep performing well. Thus, I maintain my \"Hold\" rating on the EWG ETF. EWG ETF Overview The iShares MSCI Germany ETF tracks the investment results of an index composed of German equities. The EWG ETF is diversified across sectors and is concentrated in its holdings structure, with top-10 holdings representing 58.73% of the whole ETF holdings structure. Seeking Alpha It should be noted that compared to other ETFs, the EWG has a relatively high expense ratio of 0.50%. However, EWG's assets under management are superior to any alternative Germany ETF, which ensures the highest liquidity relative to peer funds. Since my previous article, the EWG ETF delivered a total return of 17.55%, compared to 25.20% of the S&P 500 index.  Seeking Alpha While the underperformance of the German equities is clear, I'd note that I expected much worse returns given the economic outlook for the German economy. German Economy: Poor Growth And A Structural Lack Of Competitiveness The economic issues I mentioned in my previous article are still relevant today. In this article, I'd like to elaborate on the current state of the German economy and what investors should expect in the near future. According to Bloomberg, after a recession in 2023, Germany will likely avoid another recessionary year with absolutely tiny economic growth of just 0.2% in 2024. Bloomberg Things should get better in 2025-2026 as analysts surveyed by Bloomberg forecast GDP growth of over 1.0-1.2%. In absolute terms, however, such a growth rate sounds anything but exciting. Germany's underperformance is caused by a plethora of reasons: chronic underinvestment, weak productivity growth, a failure to address aging demographics, rising geopolitical tensions, and frustrating economic performance in China, one of the key export destinations for Germany. For example, Mercedes-Benz (OTCPK:MBGAF; OTCPK:MBGYY) is struggling with weak sales in China that hurt the company's profits. Mercedes' margins are set to decline from 12-14% in 2022-2023 to just 7.5-8.5% in 2024. Bloomberg In the meantime, the long-term trend of Germany's industrial production is quite horrifying. If we look at the chart below, we'll notice that since 2019, German industrial production has been suffering a steady decline, exacerbated by the COVID-19 pandemic and the energy shock caused by the war in Ukraine. Oxford Economics / Haver Analytics Markus Krebber, the head of a major German energy company RWE, said that German industry might not get back to its former state before the war in Ukraine. The primary reason is that the cost of imported liquefied natural gas (LNG) is high, making Germany's economy less competitive. At the same time, the world's largest chemicals maker, BASF (OTCQX:BASFY) (OTCQX:BFFAF), is urged to aggressively cut costs amid high-energy prices and shrinking demand for chemicals. But that's not all when it comes to issues Germany faces these days. IMF notes that throughout the 1990s, Germany experienced a downturn in public investment, and subsequent years have seen only minimal increases, barely sufficient to offset asset depreciation. This trend has positioned Germany among the lowest-ranking advanced economies in terms of investments in public infrastructure:   IMF Moreover, the working-age population in Germany may decrease way more rapidly compared to other G7 economies. This will add even more pressure on the country’s welfare system as there will be fewer workers for each retiree.   IMF The most problematic aspect of today's Germany is that there's simply no quick fix to any of the existing economic issues. It's Not All That Bad For German Equities To be fully fair, we need to keep in mind that not all German stocks are industrials that are directly exposed to the country's economic challenges. The most vivid example is a German software company SAP SE (SAP), which is somewhat insulated from the domestic issues thanks to its global customer base. With a YTD performance of +49.07%, the SAP stock outperformed the majority of large-cap German stocks, as well as the S&P500 index. Another example is Infineon Technologies AG (OTCQX:IFNNY) (OTCQX:IFNNF), a global player in the semiconductor space. Due to its significant focus on semiconductors used in automotive electronics, industrial power control, and IoT, the company generates a large portion of its revenues outside Germany. Infineon Technologies Even though Infineon's shares declined by 22% this year, purely based on macro inputs, I'm quite confident that Infineon has a way better chance to recover in the foreseeable future than German giants like BASF or RWE. The Bottom Line Without any doubt, Germany still has enough economic and fiscal capacity to deal with the existing challenges, at least for now. However, in the near term, investors considering exposure to German equities should remain cautious. Long-term structural reforms are necessary to return Germany to robust growth, but there is little evidence that such reforms may happen anytime soon. While the German economy as well as German equities will be supported by the ECB rate cuts, there's not much that can be done to cope with ongoing deindustrialization combined with rising global geopolitical challenges, at least for now. Even if Germany returns to growth, the risk/reward outlook for German equities will be skewed towards risk and not reward. Therefore, investors should be increasingly more selective and pick only those German stocks that have limited exposure to the domestic economy with a diversified global revenue mix.  Given that the EWG has companies with decent global diversification like SAP among the ETF's holdings, I don't expect bad performance of the EWG ETF, but I also don't think the EWG will perform particularly well in the near future.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2469499948"}