| Equities gain acceptance within Germany Since the middle of last year when the DAX stood at roughly 2,500 points, the market has been the preserve of domestic investors. Foreign investors with the exception of the Telekom placement in November 1996 have been conspicuous by their absence. That the market was able to post a roughly 40% gain without the support of foreign investors under its own steam so to speak is probably unprecedented in its history. The basic reason for this is a shift in the flow of funds away from interest-bearing forms of investment to equities. Above all, German institutional investors are increasing their exposure to equities, and, since the basis was low, this move is likely to be sustained. The advent of the euro, which will broaden investment opportunities by eliminating the exchange rate risk, will shift portfolio structures further in the direction of equities. Market structureAt the end of 1996, the market capitalization of the CDAX was Dm979 billion, equivalent to 27.7% of Germany's gross domestic product in 1996. So in terms of economic output, the German equity market has potential to grow despite its current small international position. |