Many traders choose to invest in Germany and its economy owing to its government’s success in building a market renowned for its stability, integrity and transparency.
Here’s your guide to the German stock exchange: from the way the economy of Germany works to trading opportunities hidden in the German stock market.
The economy of Germany at a glance
Germany remains the EU’s most economically and politically influential member state. The country has been enjoying the strong economic performance for the past few decades, based on strengthened domestic demand, large export capacity and good social outcomes.
The economy of Germany can be characterised as a highly developed social market economy known to be the largest in Europe and the fourth-largest by nominal GDP in the world. According to the Heritage, Germany’s economic freedom score is 73.5, making it the 24th freest in the 2019 Index.
Germany is rich in lignite, potash, timber and salt. Energy is sourced mainly by fossil fuels, followed by nuclear power, wind, solar, hydro, gas and biomass. Interesting fact: Germany is the first large industrialised nation to commit to the renewable energy transition, known as Energiewende.
Exports have majorly benefited from a large, innovative and productive manufacturing sector, which has strengthened its position in sectors of long-standing comparative advantage, such as cars. The economy of Germany is the largest manufacturing economy in Europe and it is less likely to be affected by the financial downturn in the foreseeable future. The country’s top exports include machinery, vehicles, transport equipment, electronic products, electrical equipment, chemical goods, base metals, rubber and plastics, pharmaceuticals and food products.
According to the Fortune Global 2000, 53 companies included in the list of the world's largest publicly traded businesses are headquartered in Germany, which makes it an important country for international investors.
Employment growth, record-low unemployment and increasing wages have underpinned the strong position of the economy of Germany. The efficient regulatory framework steadily facilitates the entrepreneurial activity, allowing business operations to be as dynamic as elsewhere and attracting investors and traders from around the world.
Why investors choose Germany in 2019
Even though this powerhouse of the European economy has suffered in the past year due to trade tensions between the US and China, Germany remains one of the world's leading industrial nations. It offers a large market, strategically beneficial location and a high level of innovation.
Foreign investors have many opportunities in various sectors of German economy, which, in turn, will come with a high income. Some of these sectors are:
Do you need more reasons to invest in Germany? Here they are:
Steadily leading economy. Germany is usually called Europe's economic engine. The country has one of the most reliable economies in the world and has proved its ability to handle trials and turbulence.
High productivity. Germany has one of the highest productivity rates in the world, offering great quality and steadily decreasing unit labour costs. A number of social and market reforms have largely contributed to the country’s continued economic growth to make it one of Europe’s most cost-effective production sites.
Large market. Germany is the EU's most populous country, with almost 83 million inhabitants. Therefore, it is the largest market within the EU.
Highly developed infrastructure. Due to its location at the heart of Europe, Germany is the EU's number one logistics market. An advanced energy and communications infrastructure and first-class transportation networks ensure efficient communication channels and on-time delivery.
Open Market. Germany is an open market that warmly welcomes foreign investors in practically all areas. This is represented by nearly 22,000 foreign enterprises that have established businesses in the country and now employ over 2.7 million people.
Qualified workforce. Germany offers an exceptionally well-qualified and motivated workforce. German employees' high standard of knowledge and skills is internationally recognised.
High level of innovation. Statistically, the country offers 277 international patents per one million citizens, which is more than elsewhere in the world. German R&D is supported by billions of euros in annual federal funds, helping Germany to become the world's leader in innovation.
Legal security. Germany is a modern constitutional state with transparent and reasonable laws, the advantages of which are internationally recognised. The political, judicial, economic and civil service environment of Germany offers the financial framework needed for international investors.
Welcoming incentives. Germany provides attractive incentives to all investors. A wide range of programs supports the broad spectrum of various business activities at all stages of the investment process.
World-renowned trademark. Products marked with the "Made in Germany" seal are seen as the highest quality worldwide. This has made a large contribution to maintain Germany's position as a world champion exporter for several years.
What are the German stock exchanges?
The Deutsche Börse Group, also referred to as Deutsche Börse AG, is a marketplace organiser for the trading of shares and other securities. Founded in 1993, it gives companies and investors access to global capital markets, as well as acting as a transaction service provider. With over 3,200 employees service customers in Europe, the US, and Asia, it is located in Germany, Luxembourg, the Chezch Republic and Switzerland, as well as operating representative offices in London, Beijing, New York, Paris, Hong Kong and Dubai. It operates the world's 12th largest stock exchange by market capitalisation – Frankfurt Stock Exchange. With 90 percent of its turnover generated in Germany, it is the largest of the seven regional securities exchanges in the country.
Deutsche Börse AG lists more than 11,000 national and international companies, including BMW and Adidas. Thousands of bonds, commodities, exchange-traded funds (ETFs) and investment funds are traded on its exchanges.
Other German stock exchanges include Berliner Börse, Hamburg Stock Exchange, Börse Düsseldorf, Tradegate Exchange, Börse München and Börse Stuttgart.
German stocks to invest in
Deutsche Börse offers a full range of securities, such as derivatives, bonds and ETFs, while its main role as operator of the stock exchange remains central. The German government attracts foreign traders and investors by ensuring the ease of buying or selling a stock on the German stock exchanges.
Due to the outstanding performance of the economy of Germany, there are plenty of German stocks in which traders can invest. The list of world-renowned German shares includes Deutsche Lufthansa AG – LHA, BMW AG – BMW, Volkswagen AG – VOW3, Henkel AG & Co KGaA – HEN3, Hugo Boss AG – BOSS, Bayer AG – BAYN, Axel Springer SE – SPRd and Beiersdorf AG – BEI.
However, the easiest way to trade any market is to choose a broad market index, which, in turn, offers an exceptional way to gain access to the foreign stock market without a need to analyse the performance of individual companies. It provides traders with a high degree of liquidity, longer trading hours and generally tight spreads. Good examples of Indices are CDAX, LDAX, VDAX and TechDAX.
However, the DAX 30, also known as the Germany 30, is a top preference of many traders worldwide. The DAX 30 is an index that reflects the performance of 30 major blue-chip German companies listed on the Frankfurt Stock Exchange. Established in 1988, it is a free-floating index, covering the German entities with the largest market capitalisation and book value, representing over 80% of the Deutsche Börse's market cap. It is a benchmark index most widely used as an indicator of the country’s equity market.
As of June 2019, it included well-known global brands, such as Adidas, Allianz, Siemens and Deutsche Bank, as well as the vast majority of stocks mentioned earlier in the article. The prices used to calculate the DAX are taken from electronic trading platform Xetra, which is operated by Deutsche Borse. The composition of the index is regularly reviewed and companies can be removed if they no longer rank in the top 45 biggest companies.
Once you’ve decided on the stock or index you want to invest in or trade, it is time to pick the best-fitting financial instrument. There are a few ways you can trade or invest in German stocks, however, one of the most popular and easiest ways to do so is through contracts for difference (CFDs).
How to trade German stocks and indices CFDs
Trading German indices and stocks can be simple with CFDs. A contract for difference is a type of agreement between an investor and a broker in order to profit from the price difference between the opening and the closing value of the trade.
When trading international markets, CFDs offer you an opportunity to go long or short on the market without the need to deal with conventional exchanges. It also allows you to trade with a cross-section of liquid trading instruments on margin, offering bigger exposure to the chosen markets.
Moreover, when trading CFDs, you don’t actually buy the underlying asset itself, but instead deal with the buying and selling prices of a given financial instrument in order to profit from the price difference, providing easier execution and greater liquidity. However, as CFDs are a leveraged product, both earnings and losses are magnified.
Check out Capital.com to learn the latest information about German economy today and trade German stocks and indices CFDs.