More Germans have bought equities than any time in five years, boosting ownership from one of the lowest levels in the developed world as near-zero bond yields increase the attraction of riskier assets.
About 10.2 million Germans owned stocks in the first half of 2012, the most since the financial crisis began in 2007 and up from 8.3 million in the first half of 2011, according to the Deutsches Aktien-Institut, a shareholder lobby. The gains brought the investment level to about 6.3 percent of the population, compared with 23 percent in the U.K. and 56 percent in the U.S., according to the DAI.
Germans are turning to equities for appreciation and income as policy makers take steps to tackle the euro-area debt crisis. The DAX Index has surged 22 percent in 2012, the second-best performance among 24 developed markets tracked by Bloomberg. Henkel AG, the Dusseldorf-based maker of Persil detergent, and SAP AG, the largest maker of business-management software, led the gains as yields on government 10-year notes dropped to 1.127 percent on June 1, the lowest level since Bloomberg began collecting the data in 1989.
“Germans traditionally loved government bonds, but now inflation is rising and there is less security and stability in bonds because of the concerns surrounding Portugal, Italy, Greece and Spain,” said Robert Halver, head of capital markets research at Baader Bank AG in Frankfurt. “Now, Germans are more willing to buy equities.”
German stocks are surging as economist forecasts compiled by Bloomberg predict the world’s fourth-biggest economy will avoid the euro-area recession and European Central Bank policy makers agree to unlimited bond purchases to fight speculation of a euro breakup. As the nation’s retail investors grow in confidence, they are seeking alternative investments a decade after their last foray into riskier assets ended in the failure of the Neuer Markt gauge of technology companies.
The DAX advanced 0.7 percent to 7,214.5 at the close of trading in Frankfurt today, the highest in more than a year.
Inflation in Germany rose to 2.2 percent in August from 1.9 percent the previous month, pushing the so-called real rate on 10-year bunds further below zero. The yield on the two-year notes is 0.04 percent. Low payouts on government bonds are prompting Germans to risk more speculative investments, according to DAI Director Franz-Josef Leven.
“More and more people see that they have to act on their own and that they have to invest part of their income to have some additional income when they are old,” Leven said. “When the bond market is down and you earn for German state bonds just zero percent, people look for some sort of opportunity to make some performance.”
Investing in real estate is discouraged in Germany, with buy-to-let investors who sell a property within 10 years of the purchase date facing punitive taxes.
Volume in German stocks is climbing, bucking a three-year trend of reduction around the world. About 231 million shares have changed hands in DAX Index shares each day this year, up 38 percent from 2010. By contrast, daily trading on American exchanges has averaged about 6.5 billion shares a day in 2012, down 23 percent from two years earlier, data compiled by Bloomberg show.
The increase in German equity ownership is being led by younger investors who are more comfortable taking risks on stocks. About 1.5 million Germans in their 30s held equities in the first half of this year, compared with 1.1 million in 2010, DAI data show.
Philipp Koock, a 30-year-old freelance software consultant in Frankfurt, is one of the new generation prepared to gamble more than their parents.
“I use spare money to try to make a quick profit,” Koock said in an interview. “A good friend introduced me to it when I was in my mid-20s. He was making huge money on company stocks. My father is more safety conscious and holds investments which protect his money.”
Koock owns 2,000 euros ($2,500) of shares in Walldorf, Germany-based SAP and usually holds stocks for between two and three months while his father invests over three to five years, he said. He also has a retirement fund linked to the performance of Germany’s benchmark DAX.
SAP shares have surged 32 percent in 2012 as the maker of business-management software reported a 13 percent increase in second-quarter profit. Henkel has rallied 40 percent for the biggest gain in the DAX after second-quarter adjusted earnings before interest and taxes rose to 609 million euros from 514 million euros a year earlier, exceeding analyst estimates compiled by Bloomberg.
Germans’ historically cautious attitude to investing was exacerbated by the crash of the Neuer Markt, an exchange for startups that was created in 1997 as an answer to the Nasdaq Stock Market in the U.S. and closed five years later. Share ownership declined almost every year in the decade through 2011, having peaked at 12.9 million in 2001, DAI data show.
“When the Neuer Markt broke down, the confidence and euphoria for share ownership was completely destroyed,” said DAI’s Leven.
As appetite for risk among Germans returns, companies hoping to attract their money are offering new trading products.
Stoxx Ltd., a joint venture between Deutsche Boerse AG and SIX Group, in partnership with Barclays Plc, introduced a selection of products in 2009 that enable investors to bet on the levels of implied volatility on pan-European and German stock indexes.
“These products require a high level of sophistication and affinity with the stock market because they do require the investor to closely follow developments in stock prices,” said Konrad Sippel, global head of product development at Stoxx.
The number of structured products traded on the five-year-old Scoach market, which includes securitized derivatives such as certificates, warrants or reverse convertibles, jumped to 912,775 in June 2012 from 180,337 in April 2007. The venue is a joint venture between SIX Swiss Exchange Ltd. and Deutsche Boerse, operator of the Frankfurt stock exchange.
Comdirect Bank AG, the retail brokerage arm of Commerzbank AG, started offering contracts for difference in September 2011 and now has 4,000 customers trading the securities, which enable investors to make leveraged bets on price movements without buying the underlying securities.
“Our customers are becoming much more active in using products which provide them with an opportunity to take advantage of volatility in the market,” said Stefan Wiese, trading product manager at Comdirect in Quickborn, Germany.
Some German investors are also trading on social network-driven websites, where users copy investment decisions made by the best-performing users. These so-called gurus attract thousands of followers, in a way similar to those on micro-blogging website Twitter.
EToro, a New York-based social investment market, said customers in Germany have more than tripled over the past year, with 10 percent trading on the DAX.
“When the stock market plummeted during the high-tech bubble, many German investors got burned and it took over a decade to reassure them that stock trading and online trading is a valid investment opportunity,” said Yoni Assia, chief executive officer and founder of EToro.
Still, as investment in the stock market becomes more common, investors are being warned to ensure they understand the products they are buying.
“The real problem of the past few years was mainly that people were investing in things that they were told were safe and turned out not to be safe,” according to Hermann-Josef Tenhagen, editor-in-chief of Finanztest, the magazine of Stiftung Warentest, Germany’s consumer body. “The real question is if people understand if it is a risky investment, and what sorts of risks are involved.”
For Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich, continuing affluence and relatively low unemployment mean Germans will keep taking more risks with their investments. The jobless rate in Germany stands at 6.8 percent, compared with a record 11.3 percent in the euro region as a whole and 8.3 percent in the U.S., according to Bloomberg data.
Germany’s economy will grow 0.5 percent this quarter and 0.9 percent in the final three months of 2012, according to the median of 17 economist forecasts compiled by Bloomberg. The euro area is projected to shrink 0.8 percent and 0.5 percent in the corresponding periods.
“Despite the uncertainty in the euro, Germans have generally not lost wealth in the real estate market, and employment is still strong compared to the periphery,” said Weston, who helps manage 70 million euros. “The confidence in Germans’ personal finances has created an opportunity to take greater risk in stocks to earn returns.”