No nation exports as much savings abroad as the Germans. Equity and bond investors benefited from high price increases on foreign stock exchanges in 2019. But overall the return was extremely modest.
Dhe net foreign assets of the German economy increased significantly by 345 billion euros last year. What is meant is the balance of claims and liabilities of German companies, banks and citizens, but also of state institutions such as the Bundesbank, vis-à-vis business and trading partners abroad. According to figures published by the Deutsche Bundesbank, the net external assets at the end of the fourth quarter of 2019 were around EUR 2.4 trillion or EUR 2,472 billion. The volume of net assets was 16 percent above the level at the end of the previous year and corresponded to 72 percent of the annual German economic output.
Assets include, for example, the capital invested in foreign companies, securities such as shares, fund units or bonds, as well as balances in foreign bank accounts. The balance of the international assets results from receivables amounting to 9.4 trillion euros less liabilities amounting to more than 6.9 trillion euros. Receivables rose by 9.4 percent, liabilities rose by 7.2 percent.
The economically decisive question with regard to foreign assets is how valuable and profitable the claims contained therein are. This question has led to a scientific debate about whether the export champion Germany is investing the lavish income generated in international trade in a sustainable and profitable manner, or whether “stupid German money” is traveling the world instead.
Was the return even negative in the end?
It is difficult to draw conclusions about the quality of investment behavior, but according to the Bundesbank, the increases in value clearly exceeded the part of the increase in wealth that was generated solely through economic transactions. This is remarkable because it shows the success of the investment and the return achieved with the asset items. In the case of transactions, on the other hand, it is a question of the flow of money between Germany and abroad in the context of ongoing transactions, the investment success of which has yet to be proven. The increase, mainly driven by valuations, amounted to 139 billion euros last year. “In particular, higher valuations due to increased market prices had an impact,” writes the Bundesbank.
In response to a request from the FAZ, the economist Moritz Schularick from the University of Bonn attributes a significant part of the increase in gross foreign assets calculated by the Bundesbank in euros to currency effects. The common currency depreciated by around 7 percent against the dollar in 2019. After adjusting for the exchange rate, the actual return is likely to have been low. After deducting inflation, the return could even be roughly negative.
Schularick differentiates his view in that Germany also holds investments in countries of the euro zone for which no exchange rate changes need to be taken into account. In general, however, the dollar is a good approximation for currency effects. Against this background, the development of German foreign assets looks modest overall – compared, for example, with the strong performance of the American stock markets or the German leading index Dax in 2019 or the high price increase on the German real estate market.
Lively demand for securities
With a view to securities investments alone, however, investors in Germany have benefited noticeably. According to the Bundesbank, at the end of 2019 they held a portfolio of foreign securities that had increased by more than 14 percent or 426 billion euros to 3.3 trillion euros. The demand for long-term debt securities issued abroad rose particularly markedly, and the yields of which were often higher than those of corresponding German securities.
The demand for foreign investment fund shares also developed briskly. In almost all asset classes, with the exception of short-term bonds, there were very strong increases in value due to price increases. According to the Bundesbank, these were significantly more extensive than the positive exchange rate effects caused by the depreciation of the euro.