The stock market, like everything else, is globalising. German stocks are now more accessible than ever to American investors. There are many ways you can gain exposure to the German equities market. Larger German companies often cross-list their stock in the United States as "American Depository Receipts," or ADRs. These can be bought and sold like any other U.S. stock. You can also buy shares in an exchange-traded fund (ETF) that holds a basket of German stocks. Finally, if your broker provides access to the German stock exchange, you can buy and sell German shares directly there.
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Things you need
- Brokerage account
- Capital to invest
Decide whether you want to buy a specific German stock or a German index fund. An exchange-traded fund (ETF) is an investment fund that buys assets and then issues shares to the public, which trade on the stock exchange like any other stock. Several ETFs operate as "index funds" - they hold baskets of German stocks to provide exposure to the overall German stock market. This diversification tends to lessen volatility and avoid losses due to problems which occur only at one specific company. For example, the iShares MSCI Germany Index Fund (NYSE: EWG) is designed to track the MCSI index of German stocks.
Decide what German companies to invest in. Germany has a large and complex modern economy, integrated into the European Union's larger economy. Besides the same kinds of background investigations on specific German companies that you would perform on an American company, research the macro state of the German, European and world economies, and think about what companies will do well in that environment in the future.
Consider ADRs of German stocks. ADRs are foreign stocks deposited with a trustee in the U.S. and traded on the American stock exchanges just like any American stock. Only a few very large German companies such as Siemens (NYSE: SI), Deutsche Bank (NYSE: DB), and Deutsche Telekom (NYSE: DT), the parent company of T-Mobile, go to the regulatory trouble of cross-listing their stocks on exchanges in the U.S. Other German ADR stocks like Adidas (OTC: ADDYY) and Volkswagen (OTC: VLKAY) trade over-the-counter on the "pink sheets"; that is, they are not listed on a stock exchange, but sold directly from broker to broker. Check with your broker to see whether you can purchase OTC stocks in your account.
Open an account with a U.S. broker that provides access to the German stock exchanges. If the stock you're interested in isn't available in the U.S. as an ADR, you must buy it directly on the German exchange. Many brokers, particularly larger ones, offer their clients the ability to trade German stocks directly on the German stock exchanges. Check your broker's website or call and ask. With direct access to the German exchanges, you can buy and sell the many smaller German stocks that aren't available in the U.S. as ADRs.
Tips and warnings
- Make sure to do proper due dilligence on any companies whose stocks you are considering. Detailed financial reports are available online.
- German stocks, like all stocks, are risky investments. Their prices can go down as well as up. Don't invest money that you can't afford to lose.
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