Turning the Tide: Olgerd Eichler's Optimistic Outlook on Germany's Upcoming Elections and Small-Cap Stocks
Frankfurt
"Affordable stock prices promise intriguing investment possibilities"
Germany's economy yearns for a fresh start, asserts MainFirst fund manager Olgerd Eichler. The upcoming federal election might serve as a catalyst for an "Agenda 2030," offering promising prospects for German stocks, particularly small and mid-caps. Despite being undervalued, these stocks present an intriguing investment opportunity.
History has shown that Germany's economy can weather crises. At the turn of the millennium, for example, Germany confronted economic turmoil in 2002 and 2003. Yet, under Chancellor Gerhard Schröder, the government dared a significant overhaul with Agenda 2010. Although the reform cost Schröder his chancellorship, Germany's economy recovered robustly—unemployment rates plummeted, and the German stock market excelled. In fact, Germany's DAX outperformed the US stock index S&P 500 from 2003 to 2008 (see chart).
Today, Germany grapples with formidable challenges. According to Eichler, economic growth has slowed, industrial production has declined in critical sectors like automotive and chemicals, and fossil fuel dependency impacts competitiveness. Meanwhile, Germany lags behind in essential technologies like artificial intelligence amidst the digital transformation. Geopolitical tensions, including the competition between the USA and China, the war in Ukraine, and global trade realignment, add to the complexity of the situation.
Domestically, inflation, social inequality, migration, political missteps, and the climate crisis have polarized society, leaving many citizens disillusioned with the political stalemate and craving for bold reforms.
Opportunity for a much-needed realignment
Eichler considers Agenda 2010 a landmark reform, asserting it paved the way for Germany's subsequent economic resurgence and restored its competitive edge. Measures such as loosening dismissal protection, introducing Hartz IV laws, and deregulating the labor market were met with controversy but helped avert the economic downturn.
Presently, Germany finds itself in a phase of uncertainty and ambiguity, similar to what it faced before. According to Eichler, this necessitates decisive political action. "However, the current problems are more intricate, with their roots intertwined in Germany's global interconnectedness," he believes.
The upcoming elections offer a chance to realign the country and tackle the reform backlog, Eichler suggests. A new government could drive forward change in the areas of digitization, bureaucracy, and energy. Clear goals, brave decisions, and focused economic policies are necessary to lay the foundation for Germany's resurgence as Europe's economic engine and its rise as a strong international player.
The German mid-market stands to gain significantly from new economic policy initiatives. Confident companies and increased investment readiness amongst small and medium-sized enterprises could spawn from such stimuli, as many of these enterprises display untapped potential, having long been overlooked by investors. "The low valuations of these stocks indicate particularly fascinating price prospects," explains Eichler.
Germany's stock market presupposes upswing potential if the opportunity for fresh economic policy is seized. Yet, the question lingers: Will an "Agenda 2030" succeed following the federal elections?
Enrichment Data Insights
The potential impact of a new government's economic policies, such as an "Agenda 2030," on German stocks, particularly small and mid-caps, would depend on several factors within the broader context of current economic challenges and upcoming federal elections. These include the new government's energy policy, budget cuts, relief measures, and investment opportunities in renewables and structural reforms to boost competitiveness. The upcoming elections could introduce political uncertainty, but if they result in a stable government committed to supporting economic growth and structural reforms, stock prices could stabilize or even rise.
- In the context of Germany's upcoming elections, Olgerd Eichler, a fund manager at MainFirst, proposes that an 'Agenda 2030' could present promising prospects for small and mid-cap German stocks, making them an intriguing investment opportunity in personal-finance and business.
- The impact of the new government's economic policies, such as an 'Agenda 2030,' on these stocks would be influenced by factors like energy policy, budget cuts, relief measures, investment in renewables, and structural reforms to boost competitiveness, all within the broader context of the economic challenges faced by Germany and the tumultuous political climate, making it general-news worthy.
- Reflecting on Germany's history, Eichler asserts that economic reforms such as Agenda 2010, which focused on digitization, bureaucracy, and energy, have played a significant role in the country's economic resurgence, highlighting the important role of politics in shaping the finance and investing landscape.
