personal finance

Germans switch to stock market in search of returns


Savers seeking the financial advice of Mario Münk and his colleagues at the Berliner Volksbank receive a sobering four-digit response: 0.001 per cent.

That is the interest rate currently available on a savings account, the investment vehicle of choice for generations of Germans.

“In the old days you could put your money into a savings account and at the end of the year the interest would be enough to head downtown and buy the family Christmas presents. Today, it is not even enough to pay the parking fee,” said Mr Münk, who heads the Volksbank’s finance centre on Kurfürstendamm, the shopping street in the western part of the capital.

Faced with such puny returns, Germany’s conservative savers are increasingly turning to an institution they have long viewed with ambivalence: the stock market. 

“The readiness to invest in shares is higher than it used to be. People are gradually getting more courageous,” said Mr Münk.

His impression is borne out by data from the Deutsches Aktieninstitut (DAI), a lobby group that represents publicly traded companies, banks and stock markets.

The latest survey shows that the number of shareholders in Germany rose to 10.3m last year — the highest since 2007. From a post-crash low point of 8.4m in 2010, the number of Germans who either hold stock directly or who invest in equity funds has risen by more than 20 per cent. 

Michaela Hohlmeier, head of capital market trends at the DAI and one of the authors of the study, said the increase reflected two factors. “The Dax [Germany’s blue-chip stock market index] has been on the rise for more than a decade, so people start to get interested. Then you add in the low interest rate on savings accounts and their attention really turns to finding an alternative,” she said. 

The European Central Bank announced last month that it would keep interest rates at 0 per cent at least until next year, sparking a renewed outbreak of anguish among German savers. The ECB’s main borrowing rate has been stuck below 1 per cent for close to seven years. 

Despite the record-low interest rate environment, analysts point out that Germans continue to approach the stock market with much greater caution than investors in other western countries. According to data from the OECD, shares and equity investments make up just 11 per cent of household assets in Germany — the third lowest percentage in a ranking of 34 countries. In Sweden and Finland, shares and equity make up close to 40 per cent of household assets.

“The perception in Germany is that shares are something for rich people or for gamblers. The idea that the stock market is simply a way to benefit from the productive wealth of the private sector is not very common,” said Martin Weber, a professor of economics at the University of Mannheim and an expert on behavioural finance. 

German trust in the stock market has yet to recover fully from the dotcom crash almost two decades ago, said Prof Weber.

The years leading up to the crash saw a surge in interest among German retail investors in initial public offerings and internet stocks. Close to 2m Germans also bought into the heavily advertised but ultimately ill-fated flotation of state-owned Deutsche Telekom in 1996. When the dotcom bubble burst and Telekom shares crashed after 2000, retail investors suffered heavy losses. “This did a lot of damage to the reputation of the stock market,” said Prof Weber. 

Surveys suggest that large numbers of German savers continue to view an investment in shares as too risky. A poll released by the Stuttgart bourse and the DAI this year found that 88 per cent of savers with no exposure to the stock market were not even considering an investment in shares of equity funds. Asked why, 48 per cent responded that such an investment was “too complicated”. Almost two-thirds said an investment in shares or equity funds was “too risky”. 

Whether the recent increase in German shareholders will continue is far from clear. Economists expect low interest rates to persist for the foreseeable future, which suggests that savings accounts will continue to remain unattractive.

Analysts such as Prof Weber also point out that the rise of exchange traded funds and index trackers over the past decade have made it easier and cheaper for retail investors to gain exposure to the stock market.

The DAI data suggest that fewer Germans hold individual stocks than before, but far more invest in equity funds.

The risk is that Germans are once again turning to the stock market in the late stages of a prolonged rally — and that the next crash could turn yet another generation off shares.

“The question is: Will people panic and drop everything or will they stick with it?,” asked Ms Hohlmeier. “Germans are said to be risk-averse. But what many people here don’t realise is that in real terms they are losing money every day by leaving it in a savings account.” 



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