Investing in Germany

August 18th, 2022
8 minutes read

Germany is the largest economy in Europe and the fourth largest economy in the world after the United States, China, and Japan.[1] The economy in Germany is stable, driven by industrial production, and is commonly known for high-quality manufacturing, which makes it the 3rd largest exporter in the world.[2]

The standard of living in Germany is, on average, very good despite housing 83,4 million people. Every year an average German citizen produces a value of over €50.000, which provides a good foundation for prosperity among the population.[3] The country has been attracting the eyes of international investors for decades with its many well-known publicly traded companies.

Curious about investing in Germany? Learn about Germany ETFs, real estate crowdfunding and P2P lending(in German: P2P-kredite) - three popular ways to invest in Germany.

Germany's Economy

Germany's economy is forecasted to grow by 1,9% in 2022 and 1,7% in 2023 by OECD, but the war in Ukraine and sanctions against Russian oil can change the outlook. The employment rate is high throughout the country and steadily increased before the 2020 crisis.[4]

The largest stock market in Germany is the Frankfurt Stock Exchange, with over 90% of the trading volume in the country, and also one of the largest exchanges in the world. Germany's most valued companies can be found in the DAX 40 Index (formerly DAX 30) and contain some household names like Adidas, BMW, Porsche, and Siemens. The DAX index is the equivalent of the FTSE 100 in the United Kingdom and the Dow Jones Industrial Average in the United States.

The most vital sectors in Germany are vehicle construction, engineering, chemical, and electrical industries, but the backbone of the German economy is the high-performing medium-sized enterprises. More than 1,000 of these companies are so-called hidden champions that are often publicly less-known international market leaders such as WickertMennekes, and Symrise.[5]

Investing in Germany with ETFs

The easiest way to invest in Germany is through exchange-traded funds (ETFs). ETFs allow more or less anyone to buy a piece of the entire German stock market and provide investors with diverse exposure to companies domiciled in Germany.

International investors can purchase German index ETFs at any large stock broker almost anywhere in the world or through the Electronic German Stock Exchange(Xetra). Still, the fund's managers are typically companies based in the United States, like Blackrock and WisdomTree.

The most popular ETF for investing in Germany is the Ishares MSCI Germany ETF (EWG). With total assets of over €1 billion, your fee is at a straightforward expense ratio of 0,50%, managed by Blackrock's ETF provider iShares.[6] Tracking the well-known MSCI Germany Index provides investors targeted access to 85% of the equities in the German stock market and thereby exposure to the majority of publicly traded companies in Germany.

Other popular ETFs to invest in Germany include:

  • iShares Currency Hedged MSCI Germany ETF (HEWG)
  • iShares MSCI Germany Small-Cap ETF (EWGS)
  • Global X DAX Germany ETF (DAX)
  • WisdomTree Germany Hedged Equity Fund (DXGE)

When index investing with ETFs to gain exposure to a specific market like Germany, key elements differentiate the funds, such as the fee structure, the underlying German index, and the management company.

Investing in Germany with Real Estate Crowdfunding

The easiest way to get started investing in real estate in Germany is with Real Estate Crowdfunding. Some of Europe's largest real estate investment platforms are operating in Germany, like the domestic platform Exporo or international EstateGuru.

The ease of real estate crowdfunding makes it possible for retail investors to get started investing in German real estate for as little as €50. There are over 30 real estate crowdfunding platforms in Germany, most of which facilitate loans and debt investments to real estate companies.

Investing in Germany with Peer-to-Peer Lending

The easiest way to invest directly in debt notes and loans in Germany is with Peer-to-Peer (P2P) Lending, also often referred to as P2P-kredite in German. P2P lending allows investors to gain exposure to corporate debt, private debt, and even municipality debt in Germany.

In June 2022, the largest private debt P2P lending platform in Germany, Auxmoney, closed its doors for retail investors and shifted focus to funding the loans themselves. The same sort of p2p exit has been happening in the UK with large platforms like Ratesetter acquisition by Metro Bank.

For the growing P2P lending market in Germany and crowd of investors worldwide, there is still hope with the over 50 P2P lending platforms in Germany, which offer a wide variety of debt investments in Germany. Germany's most popular P2P lending platforms facilitate business, real estate, or green loans.

A large amount of sustainable debt financing platforms in Germany reflects Germany's citizen's importance in supporting the environment. Over 20 sustainable debt financing platforms exist in Germany, with names like Green RocketEconeers, and Ecozins. All with the common goal of facilitating financing to projects with significant environmental impact. Germany's most common type of sustainable debt projects involves financing windmills, solar panels, energy optimization of buildings, and setting up electric charger stations throughout the country.

Alternative Investing in Germany

The alternative investment market in Germany is moving into the mainstream, not only for retail investors but is also playing an increasingly important role in the German institutional investor portfolios. Germany's most popular alternative investment assets are real estate, private equity, and corporate debt, with most institutional investors diversifying across multiple asset classes.[7]

For the retail investors seeking alternative investments in Germany, the diversification opportunities are good among online alternative investment platforms. With over 70 alternative investment platforms in Germany, the market is the second largest in Europe after the United Kingdom when looking at the number of companies offering alternative investments.

For the international investors seeking alternative investments in Germany, the language barrier or restrictions to onboard only German or EU citizens as investors can be a limiting factor to entering the German alternative investment market. However, with the new EU Crowdfunding Regulation, more and more German platforms are translating their pages to English and opening up for onboarding international investors.

In Germany, the alternative investment market was not a new invention that arose with the internet around real estate crowdfunding and peer-to-peer lending. In 1997, the German Association for Alternative Investments (BAI) got founded in Bonn. The Bundesverband Alternative Investments is still active with over 250 members, counting some of Germany's most prominent financial players.[8]

Germany's Financial Regulator

The financial regulatory authority in Germany is by its abbreviation called BaFin. It is an independent financial institution that falls under the supervision of the Federal Ministry of Finance and is in English called The Federal Financial Supervisory Authority of Germany.

BaFin has over 2.500 employees working in Bonn and Frankfurt, supervising over 6000 domestic investment funds, 400 asset management companies, 1500 banks, 700 financial services institutions, and many more.[9] BaFin plays a crucial role in the German economy in ensuring investors' trust in the financial markets by enforcing standards of conduct and market supervision.

The Bottom Line

Investing in Germany through ETFs that track a German index, such as MSCI Germany Index or DAX 40, allows international investors to gain exposure to the most publicly traded companies in Germany. The alternative investment markets are becoming popular in Germany for retail and institutional investors. Some of Germany'sinvestor's largest European real estate platforms allow international investors a direct and easy way to get a piece of German real estate. The Peer-to-Peer lending industry in Germany is facing pressure from the increasing interest by institutional capital. However, it is still strong in real estate, business, and sustainable finance platforms offering green debt.

Article Sources

  1. The World Bank: "GDP Worldwide, Europe and Germany (Current USD)
  2. The World Bank: “Exports of Goods and Services in Germany (Current USD)
  3. The World Bank: “GDP per Capita in Germany (Current USD)
  4. The Organisation for Economic Co-operation and Development (OECD): “Germany Economic Snapshot June 2022
  5. Deutschland.de: “Why is the German Economy so Strong?
  6. iShares by Blackrock: “iShares MSCI Germany ETF
  7. Preqin: “Alternatives Move into the Mainstream in Germany
  8. The Bundesverband Alternative Investments (BAI): “BAI Members
  9. The Federal Financial Supervisory Authority (BaFin): “Functions & History