The German stock market is benefiting from equity fever.
A combination of favorable economic conditions and structural changes in the German stock market should make German equities a good bet over the short and long term, according to investment experts.
Ingo Mainert, who heads up Commerzbank's German stock market analysis, said the Deutsche Aktien Index, commonly called the DAX 30, could sprint up 10% to 2500 during the next three months and at least 20% annually through 1997.
Fundamentals in the German stock market are strong. Richard Lewis, a director at WorldInvest Ltd., London, said: "The German market will benefit from the continued cyclical upswing and the recovery of the dollar. We don't expect it to peak until 1998. And the market offers fair value right now."
A recent Salomon Brothers report concurs. The brokerage firm said Western German growth may slow to less than 2% this year, but lower interest rates and a future fiscal stimulus should boost growth in 1996. Salomon recommends investments in cyclical stocks, particular in auto and metals and steels stocks, such as Daimler-Benz AG and Thyssen AG.
But changes in the structure of the equity market and the attitudes of individual German investors may spell a positive long-term future for stocks here.
By 2000, Germany's eight stock exchanges are expected to consolidate into four or fewer, with Frankfurt's Deutsche Borse AG clearly becoming the central exchange. That means there will be better defined stock prices and not, as is now the case, as much as a 5% difference in share prices from one regional exchange to another.
What's more, an electronic trading system, Zentralen Entwicklung einer Unternehmens Strategie, more commonly called by the acronym ZEUS, will replace the trading floor by the end of the millenium. Deutsche Borse officials emphasize the switchover will be slow, to avoid disasters like the London Stock Exchange's aborted effort to adopt TAURUS, a clearance and settlement system.
Demographics also should play a major role in bolstering stock investment. Fifty years after World War II left much of the country penniless, the economic miracle has resulted in a huge source of wealth about to be transferred to the next generation. According to a study conducted by BBE Unternehmensberatung, a consulting firm in Cologne, some 2.6 billion deutsche marks ($1.7 billion) of cash and property will be inherited during the next five years.
This new generation is a lot more knowledgeable about - and trusting of - the stock market than its parents, who favored the good old-fashioned bank account. Plus, they are likely to be motivated by tax advantages of owning stocks. Capital gains are not taxed if shares are held at least six months, while interest income is taxed.
Interest in equity mutual funds is soaring, although bond funds still predominate. Investment in equity funds went up 25% to 48 billion deutsche marks between the end of 1993 and the second quarter of this year, according to Bundes Verband Deutscher Investment-Gesellschaften, Frankfurt, Germany's association for investment funds.
To quench this newfound thirst for stocks, 30 companies, including Dresdner Bank AG, Schering AG and Deutsche Bank AG, split their stocks to make them a bit more affordable.
All three split in June under guidelines allowing nominal share value to be reduced to 5 deutsche marks from 50.
The growing appetite for equity is causing German companies to turn increasingly to the stock market. Last year, there were 10 initial public offerings. By July of this year, there already have been 10, with at least four more expected, including Merck AG. Eventually, Eastern German companies are expected to list their shares as well.
But the big-ticket IPO will be Telekom AG's 15 billion deutsche mark issue slated for next year, which threatens to swamp the market.
"A lot of companies are preparing to go public now out of fear of Telekom's big offering next year," said a spokesman for the Frankfurt stock exchange.
Officials of the Frankfurt exchange predict that by the turn of the century, stock market capitalization could double and turnover quadruple. That's good news for all investors.
The move to issuing equity is causing German companies to pay more attention to their shareholders, a new trend in the hidebound bank-driven German culture. Newspaper help-wanted sections have numerous ads for investor relations personnel.
Still, some think Germany has a long way to fully switch to an equity culture. Average total stock market capitalization was only 29% of gross national product between 1991 and 1994, compared with 65% for New York Stock Exchange-listed stocks, according to the Organization for Economic Cooperation and Development, Paris.
