The iShares MSCI Germany ETF (NYSEArca: EWG), the largest exchange traded fund tracking German equities listed in the U.S., traded higher Thursday, extending its year-to-date gain to nearly 7%, despite a bearish call on German stocks from a major bank.
Alternatives to EWG include the currency hedged iShares Currency Hedged MSCI Germany ETF (NYSEArca: HEWG), the Recon Capital DAX Germany ETF (NasdaqGM: DAX) and the Deutsche X-trackers MSCI Germany Hedged Equity Fund (NYSEArca: DBGR), which is also currency hedged.
In a note out Thursday, Deutsche Bank recommended selling German stocks, citing high price-to-book ratios and low dividend yields relative to other European markets.
“Assessed against the bank’s European country valuation scorecard, Germany had its largest underweight rating. German equities tend to struggle when European cyclicals underperform defensives, a situation the strategists predict is approaching,” reports Bloomberg. “The DAX Index is among the most cyclical of the region’s benchmarks and is priced for further positive euro-area macro-economic surprises, optimism that may have become stretched, they said.”
With its heavy tilt toward large, multi-national companies, the DAX index benefits from depreciating euro currency. A weaker euro would help support export growth and potentially generate greater revenue from overseas operations for the multi-nationals. DAX, the ETF, is the only U.S.-listed ETF that is a pure DAX index tracking fund.
Some investors may be deterred by the ongoing flood of Syrian refugees entering Germany. While observers previously argued that the influx of refugees may help reverse Germany’s aging demographics, augment the country’s dwindling labor pool and stimulate infrastructure spending, Centre for European Economic Research President Clemens Fuest argues that Germany will have to pay a high cost and see little return on investment.
“Deutsche Bank also recommends avoiding French stocks. The CAC 40 tends to track euro-area PMIs and now fully reflects positive growth scenarios, the report shows,” according to Bloomberg.
Ahead of a widely anticipated national election there, the iShares MSCI France ETF (NYSEArca: EWQ), the largest France exchange traded fund trading in the U.S., is higher by 6% this year. Germany and France are the Eurozone’s two largest economies.
For more information on Germany, visit our Germany category.