German industry cannot complain about too little work these days. The manufacturing sector recorded incoming orders in July 3.4 percent higher than in the previous month. Analysts had actually expected a slight decline. The increase means that the order books are fuller than ever since the beginning of the time series in 1991. “The significant increase compared to the previous month is due to large orders,” says the Federal Statistical Office with a view to the July figures.
Anyone who has German industrial stocks in their depot should not, however, rejoice too early. The excellent order situation is not reflected in rising share prices. Stocks that have recently trended sideways, such as the shares in BASF and Thyssenkrupp, are making no move to break out. Shares that had risen in recent months even fell slightly in the short term – for example in the case of industrial gases specialist Linde. Despite full order books, industrial stocks could be among the losers in the near future.
Delivery bottlenecks are dampening the mood
Many industrial companies cannot be really happy about the good order situation, because they hardly manage to process the orders. The reason for this are problems with the delivery of preliminary products. In the past few months, some of the factories have even been closed in important branches of industry due to supply bottlenecks, according to a report by DZ Bank. “As a result, the gap between incoming orders and production development in German industry has widened as seldom before.” also writes the Federal Statistical Office.
No wonder that the mood in companies has clouded over. The Ifo business climate index fell to 99.4 points in August, after 100.7 points in July – mainly due to more pessimistic feedback from the industry. Manufacturing companies are still satisfied with the current business, says Ifo President Clemens Fuest. But the outlook has deteriorated significantly.
The long-term outlook is as mixed as the medium-term. Germany’s industry is in the process of being restructured and has to become greener and more modern. Investors can hardly predict which companies will master the change best. Linde, for example, is considered to be well positioned for the future thanks to a strong commitment to hydrogen. Thyssenkrupp, on the other hand, is only now starting to make its steel division more climate-friendly after a failed attempt to sell it last year. The financing of this conversion has not yet been finally clarified, and its success is uncertain.
Investors have to expect that the manufacturing industry in Germany will lose importance in the long term and that industrial shares will develop weaker than the broader market over the long term. The dwindling power of industry is also indicated in the Dax. As planned, Deutsche Börse added ten items to the index in September. The newcomers are newcomers from the MDax, including Siemens Healthineers, HelloFresh and Puma. As a result of the expansion, the Dax is now less industry-heavy – to the delight of market experts, who in recent years have repeatedly criticized the German benchmark index as being out of date, as a reflection of the “old economy”. Instead, the health sector is now more represented.