Conference Presentation, Interview, Fireside Chat
The Landscape for German Corporates
- The 2024 German Corporate Conference, held in Munich over three days, featured 67 live fireside chats with CEOs/CFOs and 120 companies hosting nearly 2,000 investor meetings across equity, investment banking, and research divisions.
- Nine of the top 10 most requested follow-up meetings involved technology companies, reflecting a trend where the European tech sector has surpassed the banking sector in size.
- Conference sentiment was upbeat but noted fading positive cyclical momentum due to fear of restrictions, though no companies signaled a reversal of the recovery trend.
- Restrictions on business activity were described as "baked into" Q2 guidance by the most impacted firms, suggesting the market has already priced in these constraints.
- Macroeconomic concerns dominated discussions, specifically Germany's status of experiencing its deepest post-war recession, though the contraction was softer than in other industrial nations.
- GDP contraction estimates for 2020 were -5.4% for Germany versus -7.9% for the euro area.
- Three primary mitigating factors supported Germany's resilience: effective pandemic containment, a high share of manufacturing in the economic mix (less exposure to locked-down sectors like travel/tourism), and an unprecedented fiscal response.
- Fiscal stimulus measures included a 3.5% of GDP injection, corporate borrowing safety nets, and recapitalization funds exceeding 30% of GDP.
- Investors currently view Germany as better positioned than European peers to weather challenges, with economists forecasting the recovery to continue.
- Chief Strategist Peter Oppenheimer recently initiated a long recommendation on the DAX versus the S&P 600.
- Year-to-date, the DAX and MDAX indices have rallied to almost fully recover annual losses.
- The DAX outperformed the Euro Stoxx 50 by approximately 10% year-to-date and the FTSE 100 by roughly 17% in Euro terms.
- Technology is now the largest sector in the DAX, representing 15% of market capitalization compared to 8% in the S&P 600, while exposure to utilities and banks has decreased.
- The MDAX index holds substantial exposure to industrials and chemicals (over 40% combined), a weighting higher than any other European index.
- A stronger-than-expected rebound in euro area PMIs from their April trough provided support for the recovery of German indices.
- Economists forecast global GDP growth of 7% in 2021, which is 1.7% above consensus expectations.
- The primary challenge identified for long-term German growth is euro appreciation, which poses a drag on earnings for the export-oriented DAX.
- Mitigating the currency risk, the DAX generates over 80% of its revenues outside of Germany.
- Geographic export diversification includes 18% of exports to Asia and nearly 30% to the US, alongside a business model where German companies tend to produce where they sell.
- Sustainability and ESG criteria are identified as the greatest investment opportunities over the next 20 to 30 years.
- ESG fund flows remained positive through August, marking the eighth consecutive month of positive flows year-to-date, contrasting with six months of outflows for broad equity funds.
- Year-to-date, ESG funds received nearly $90 billion in net inflows globally, whereas broad equity funds saw net outflows exceeding $120 billion.
- Decarbonization of the energy industry is estimated to require $16 trillion in infrastructure investments by 2030, creating 20 million jobs.
- The COVID-19 pandemic has driven a doubling of global e-commerce penetration.