Between Crisis and Opportunity: Why German Equities Deserve a Closer Look

Germany as a business location is under pressure—and that is precisely why it offers attractive entry opportunities for investors. Read our latest editorial to find out what signals the new federal government is sending, why “local-for-local” is more than just a trend, and why the DAX is shining despite all the challenges.

Investing in German stocks today doesn’t require courage – just a good memory. Anyone who remembers how companies like SAP, Siemens, BMW, or VW have weathered past crises know: Germany as a business location may be battered, but it is far from beaten. And a closer look reveals quiet winners – available at appealing valuations.

Every beginning has its own magic” – this quote from Hermann Hesse not only captures the mood among the population, but also the hopes of many investors in the new federal government. However, the start was overshadowed by the chancellor’s election in the second voting round. Hopefully, this will remain an exception – and future decisions will find broad support.

The coming months will show whether the government can meaningfully strengthen the economy. The challenges remain substantial: trade tensions with the U.S. continue to simmer, and sluggish global growth weighs on expectations. On the other hand, the so-called “Sondervermögen” for investment and security sends a notably constructive signal.

While the resulting growth impulses may remain moderate this year, they offer an attractive long-term perspective. If political pressure and the will to act enable consistent implementation, German companies could soon benefit from these investments.

The rapidly changing environment makes one thing clear: Germany Inc. must adapt quickly. More than ever, global disruptions require the establishment or expansion of local production and R&D capabilities.

The shift toward “local-for-local” marks a departure from centralized, export-driven growth. Take Volkswagen: a decade ago, its “world car” was designed, developed, and produced in Germany. Today, VW aims to develop a car in China specifically for China – tailored to the local market conditions.

Solid balance sheets across German corporations should pose few barriers to investment. However, investors must keep a close eye on the sustainability of the currently high profit margins.

German companies’ adaptability and speed are key strengths. Although criticism of Germany and its major corporations has grown louder, this negativity is hardly reflected in the stock markets. Over the past five years, companies have endured a historic pandemic, a major war in Europe, disrupted global supply chains, and inflation and interest rate shocks.

Still, the DAX more than doubled during this period. From its COVID low on March 18, 2020, to April 2025, the DAX surged nearly 167% on a total return basis – holding its own against the world’s top indices. For comparison: the tech-heavy Nasdaq gained 171%, bolstered by giants like Amazon, Apple, and NVIDIA.

German equities are significantly more affordable. Forecasts value the DAX for 2026 at just 14.7 times earnings, compared to 24 times for the Nasdaq.

Given Germany’s attractive valuations, a look at the second-tier stocks may also be worthwhile. Since Russia’s invasion of Ukraine and the resulting inflation and interest rate shocks, small and mid-cap stocks have taken a hard hit, significantly underperforming blue chips.

These smaller companies are also export-oriented, yet more dependent on the domestic market than giants like BMW, Siemens, or SAP. The weak German economy makes this segment less appealing for now – despite strong fundamentals. For example, the SDAX trades at just 11 times expected 2026 earnings.

But this offers opportunities: these very companies could benefit disproportionately from new political stimuli. A re-rating could be well within reach – provided companies return to their core strengths and seize the opportunities that today’s challenges present, as they have proven capable of doing in the past.

“Only those who are ready to set out and travel will break free from paralyzing routine.” – Hesse.