I’m a bit disappointed by how little discussion there is here about the shift in Germany’s fiscal policy and its impact on local companies, and more broadly on Europe.
This is a modern consumption-based economy with a lot of underutilized capacity, so stimulus would presumably have a multiplier effect of over 1 on the economy, and the scale of that stimulus is enormous.
Here’s an estimate of which sectors would benefit most from the infrastructure package. Made before conceding to the Greens’ conditions.
From Elliant Capital’s returns:
So far, the only German small caps that have performed well are in the defense sector. Going forward, former value traps, especially companies benefiting from the stimulus package, will grow. The German IT, chemical, and construction sectors… there are potential tenbaggers among them. Companies whose valuations are around P/E 10 and below EV/GP 3, and which face significant earnings growth.
Of course, votes still need to pass this week, and the supreme court must give a positive answer that the package’s implementation through the old government is not unconstitutional. I am most concerned about the court’s decision, which should be known within 24 hours.
Over the past two days, money has also started flowing into small caps, which suggests that market participants believe the package will pass. Exiting low-liquidity companies would be difficult if the investment case collapsed.