German Investors Turn Away from Stocks

Germans, never particularly fond of equities, have apparently lost their desire to invest their hard-earned money on the stock market after experiencing the painful downturn of the past couple of years.

The German Equities Institute (DAI), an independent association committed to promoting Germany as an investment location, released a report last week showing the amount of people with stocks or mutual funds dropped almost five percent in the first half of 2004 from the last six months of 2003. A total of 540,000 Germans decided to get out of the stock market, leaving the country with 10.6 million equities investors.

Only 16.4 percent of the entire German population now owns some form of equities, down considerably from the peak of 21 percent in early 2001. That pales in comparison to the United States, where around half of all Americans have stocks or equity mutual funds.

"Compared to other industrial countries, the acceptance of stocks in Germany is still unsatisfactory," Rüdiger von Rosen, director of the DAI, told reporters last week. "Many investors fail to completely take into account the long-term profitability of equities."

Conservative Germans

German investors have long been more conservative than their American or British counterparts when it comes to stocks for a number of reasons. Chief among them is the fact that the German corporate world has traditionally relied on bank lending instead of the equity markets to raise cash.

But things started to change in the late 1990s. First came the initial public offering (IPO) of former telephone monopoly Deutsche Telekom in November 1996. Billed as a Volksaktie or "people's stock," the sale of Telekom shares was considered by many to mark the start of a new German equity culture.

Shortly thereafter, Germany got caught up in the Internet stock craze that caused bourses around the world to surge to dizzying heights. The lure of easy money encouraged more and more people to buy stocks and mutual funds, but the following crash and ensuing bear market has left many Germans leery of further equity investments.

And perhaps with good reason: After its IPO at DM28.50 (€14.57) per share, Deutsche Telekom's stock soared to €103.50 in only a few years. But it plummeted just as quickly, and these days the stock is worth only €13.80.

"Stocks have a bad image -- people prefer to invest their money in bonds or short-term money market investments," Dirk Benninghoff, managing editor of the Financial Times Deutschland's finance and markets section, told DW-WORLD.

Benninghoff said the debacle surrounding Germany's failed high-tech Neuer Markt stock market had left particularly deep scars on the average German investor, adding that the popularity of stocks had likely peaked in the years 1999 and 2000. He said as long as German shares continued to move sideways investor interest would stay limited.

"The holding pattern on the bourses since the beginning of the year really doesn't offer much of a chance to make profits," Benninghoff said. "That's also scaring people away."

Hurting confidence

Corporate Germany also hasn't helped the situation.

The IPO of Postbank, the retail banking arm of Germany's logistical service Deutsche Post, was billed as another "Volksaktie" earlier this year. But the share sale became a comedy of errors after one of the lead investment banks for the IPO, Deutsche Bank, tried to buy Postbank at the same time it was preparing it for the stock market.

With a conflict of interest looming, Deutsche Bank eventually decided against buying Postbank, but then one of its equity analysts came out and said the IPO was likely to be priced too high. With several of the German finance world's leading lights involved, it was not exactly an episode to inspire confidence in the equity markets.

"The declining (interest in stocks) isn't a surprise for us," Ulrich Hocker, head of the German Association for the Protection of Securities Owners, said. "It's simply mirroring the ongoing uncertainty of private investors."