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Will Europe's Debt Mess Knock Out German Stocks' Rise?

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Europe's economy remains stuck in the vise of recession, but Germany's stocks finally have started to pick up after a lackluster start to the year. The DAX (DAXINDICES: ^DAX  ) gained another 1.1% this week, bringing its rise over the past three months to more than 11.8% to outstrip its year-to-date gains. Can investors keep beating Europe's crunch in the region's top economy, or is the German market bound to follow in its neighbors' footsteps?

Europe stuck in neutral
Bad news came out this past week as a traditional reading of German investor confidence declined by more than 2 percentage points. The ZEW Indicator is still hanging well above its historical average of a 23.7 reading, but has fallen off the rising pace set through the end of last year into the beginning of 2013. The reading came below economist expectations that had predicted a rise out of the ZEW in July. Still, the ZEW's mark for Germany is far better than its reading for the eurozone as a whole, which hangs at an unbearably low negative 74.7 points.

The rest of Europe is doing Germany's economy no favors, however. Debt-plagued Greece has stumbled on through austerity, and while Germany's finance minister praised the country's efforts, his warnings to the country to cease petitioning for debt write-off has spiked a sharp divide between fiscally resilient Germany and its less fortunate peers in the eurozone. Portugal's in much the same shape as Greece, as the country faces a Sunday deadline to decide the fate of its bailout measures.

For Germany's economy, the ongoing swamp of the eurozone will weigh on the nation's exports -- and export-reliant companies -- as it has already. That's no easy hurdle to jump for such a trade-reliant economy as this, and for Germany's top international businesses like industrial conglomerate Siemens (NASDAQOTH: SIEGY  ) , European business will grow all the more troubling.

Of course, it's not just Europe that's posing a problem to Siemens. The company self-reported allegations that it engaged in railway price fixing in Brazil alongside several other multinationals from Europe and Japan. It's a bad time for all of these companies, considering that a massive railway contract in Brazil is set to come up for bidding in August, one that the Brazilian government estimates at a cost of around $16 billion.

It's not the first time that Siemens has been involved in such activities: The company was embroiled in a European corruption affair in 2006 that ultimately cost more than $260 million in court fines. Investors can only hope these Brazilian accusations don't end up costing Siemens too much -- and that they don't jeopardize the company's ambitions in one of the world's emerging market star economies, particularly as Siemens's stock has been stuck in the red in 2013.

Deutsche Lufthansa (NASDAQOTH: DLAKY  ) performed better this week with a 1.5% gain as Germany's airline picked up an upgrade from sell to neutral from Goldman Sachs. It's still a tough time for airlines across the industry due to high fuel costs, and JP Morgan didn't share Goldman's sentiments when it downgraded the stock later in the week, although like its fellow bank, JP Morgan holds the stock at a neutral rank. Low-cost airlines like Ryanair have pushed hard into the cost-conscious European market, and Lufthansa has admitted as much by announcing earlier this year that it could explore the option of a low-cost base in Asia to compensate.

For investors of Lufthansa, Siemens, and other leading German stocks, it's impossible to overlook the shadow of the eurozone's debt woes looming large over the German economy. Europe's hardly the only region in a bind: Many global regions are still stuck in neutral. However, their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report.

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  • Report this Comment On July 19, 2013, at 6:35 PM, wck50 wrote:

    The larger question is if this is a Union or just a bunch of separate countries playing together. This money issue is core to deciding if each is equal in the EU or if in truth there is no union just a bunch of new banking laws.

    Because this is not, has no strong central government that can force all members rich or not to conform, you do not have a real union of minds and people.

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9/29/2016 11:45 AM
^DAX $10405.54 Down -32.80 -0.31%
DAX CAPS Rating: No stars
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SIEGY $114.59 Down -2.96 -2.51%
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