After almost 16 years with Angela Merkel as Chancellor, it’s not an exaggeration to say that Germany’s recent election marks a significant hinge point for the biggest economy in Europe.
Germany famous Mittelstand complex of small-to-medium-sized companies that pursue global dominance in high-value manufacturing niches is in the ‘sweet spot’ for both our Discovery Europe and Discovery Europe Ex-UK funds. This has led us to make the country our most significant national overweight in both funds.
This means it’s a good time to look into some key elements of the fund and their potential exposure to the policy choices Germany’s new government will face.
The green agenda
Even before July’s catastrophic floods in the Northern Rhineland[1], green issues were near the top of the political agenda. All parties other than the far-right AfD support the Paris Agreement’s target of limiting global warming to 1.5 degrees Celsius, although critics claim that these plans do not go far enough[2].
The prominence of green questions in the election debates has been heartening. As a major manufacturer with a huge auto industry, Germany faces a major strategic challenge in greening its industries.
One great step forward to improve car emissions is to lightweight the vehicles – literally to make their components weight less[3].
German engineering is at the global cutting edge in reducing materials and parts while keeping quality and safety paramount.
The focus of new model design has been in electric vehicles, and while some critics could say that Germany has been left behind by newer entrants, that does not reflect the volumes.
In order to accommodate the heavy batteries required in electric vehicles, reform and reimagining of the engineering of car parts becomes critical in ensuring that they do not become so inefficient – ie. heavy – that the transition to electric power becomes a false economy.
Newer cars – either diesel or electric – are considerably more efficient than older cars and we have been focusing on the car recycling industry, with recycled steel from junked cars a significant step in the right direction towards building a circular economy[4].
However, the Electric Arc Furnace process that conducts this process produces significant quantities of hazardous steel dust.
Recycling this steel dust serves a double function in the circular economy. The dust is high in valuable zinc, which can be extracted and used as an additive in the galvanising of steel - ‘turning muck to brass’, as the saying goes.
Cybersecurity and the digital economy
Germany’s national cybersecurity strategy has been a point of contention in this year’s election[5].
This is far from a fringe issue of interest to technical specialists. As both our professional and personal lives move online, protecting the integrity of our digital communications has become a significant strategic priority for governments worldwide.
Given the size of its economy and influence within the EU, the policy choices made by the incoming government are likely to have impact beyond Germany’s borders.
Our funds have significant exposure to this growing sector, which is promising as it enters new markets such as healthcare and professional services as they appreciate the growing need for information security.
With the pandemic only intensifying concerns around ransomware attacks – where individuals’ or organisations’ data is held ‘hostage’ by hackers[6] - companies like these are set to play a key role as Germany and Europe as a wider entity together seek to consolidate their digital security.
Healthcare
As we begin thinking about the world beyond the Covid crisis, efficient and cost-effective healthcare provision remains a priority for governments worldwide.
This has been born out in the German election campaign, with division over the nature of pan-European provision a key point of difference between the parties[7].
One niche industry where Germany has a long history of innovation is radioisotopes. The country’s nuclear industry has a focus on industry applications like leak detection, but companies in our portfolio are also pivoting to delivering critical treatment for conditions like neuroendocrine tumours and other cancers.
If the global vaccine efforts of the last 18 months have demonstrated anything, it’s that the future of medicine lies in high-tech research where German companies have demonstrated a global edge – an edge we see continuing into the future.
[1]https://www.theguardian.com/environment/2021/aug/23/climate-crisis-made-deadly-german-floods-up-to-nine-times-more-likely
[2]https://www.cleanenergywire.org/news/no-german-party-election-manifesto-fit-2030-climate-targets-report
[3]http://lightweight-alliance.eu/wp-content/uploads/2019/11/alliance_vision-document.pdf
[4]https://ec.europa.eu/environment/strategy/circular-economy-action-plan_en
[5]https://www.euractiv.com/section/digital/news/germanys-new-cybersecurity-strategy-unlikely-to-have-effect-after-elections/
[6]https://www.tripwire.com/state-of-security/security-data-protection/the-digital-pandemic-ransomware/
[7]https://www.euractiv.com/section/health-consumers/news/ahead-of-german-election-parties-split-on-strengthening-eu-health-cooperation/
IMPORTANT INFORMATION
This marketing document contains information or may incorporate by reference data concerning certain collective investment schemes ("funds") which are only available for distribution in the countries where they have been registered. This document is for the exclusive use of the individual to whom it has been given and may not be either copied or transferred to third parties. In addition, this document is not intended for any person who is a citizen or resident of any jurisdiction where the publication, distribution or use of the information contained herein would be subject to any restrictions or limitations.
The contents of this document are provided for information purposes only and shall not be construed as an offer or a recommendation to subscribe for, retain or dispose of fund units, shares, investment products or strategies. Before investing in any fund or pursuing any strategy mentioned in this document, potential investors should consult the latest versions of the relevant legal documents such as, in relation to the funds, the Prospectus and, where applicable, the Key Investor Information Document (KIID) which describe in greater detail the specific risks. Moreover, potential investors are recommended to seek professional financial, legal and tax advice prior to making an investment decision.
The sources of the information contained in this document are deemed reliable. However, the accuracy or completeness of the information cannot be guaranteed, and some figures may only be estimates. There is no guarantee that objectives and targets will be met by the portfolio manager.
All investment involves risks. Past performance is not indicative or a guarantee of future returns. Fund values can fall as well as rise, and investors may lose the amount of their original investment. Returns may decrease or increase as a result of currency fluctuations.
This communication may only be circulated to Eligible Counterparties and Professional Investors and should not be circulated to Retail Investors for whom it is not suitable
This document is issued by the following entities: in the UK: Mirabaud Asset Management Limited which is authorised and regulated by the Financial Conduct Authority under firm reference number 122140.; in Switzerland: Mirabaud Asset Management (Suisse) SA, 29, boulevard Georges-Favon, 1204 Geneva, as Swiss representative. Swiss paying agent: Mirabaud & Cie SA, 29, boulevard Georges-Favon, 1204 Geneva. In France: Mirabaud Asset Management (France) SAS., 13, avenue Hoche, 75008 Paris. In Spain: Mirabaud Asset Management (España) S.G.I.I.C., S.A.U., Calle Fortuny, 6 - 2ª Planta, 28010 Madrid. The Prospectus, the Articles of Association, the Key Investor Information Document (KIID) as well as the annual and semi-annual reports (as the case may be), of the funds may be obtained free of charge from the above-mentioned entities.
