Germany versus Spain: Are Investors About to Choose a New Favorite?

Germany’s perceived “savior” status goes far beyond the slew of news stories that tout the country’s strong points.

Investors, too, have placed their bets on Germany. Whether these investors are simply attempting to buy the best house in bad neighborhood… or truly believe Germany is the answer to the euro zone’s problems… the net result had been the same.

Investors are buying German stocks. Not Spanish stocks. Not French companies. Certainly not Greek stocks.

Here’s a ratio chart showing the relative performance of Germany (EWG) versus Spain (EWP). A rising trend shows investor’s preference for German stocks.

Click here to view larger

And that’s clearly been the trend since 2009. But, this relationship could be on the verge of shifting.

Germany’s performance, relative to Spain, peaked in mid-2012. Then, for a short period, investors pared back their enthusiasm for German stocks.

While this ratio is on the rise again, showing German strength, it’s getting close to the prior peak, where it may run into resistance… yet again.

Much of the future trend in this relationship will be influenced by general risk-on, risk-off sentiment. Risk-on bodes well for Spain… while a re-emergence of the risk-off environment will push investors back into German shares.

Stay tuned for more updates on this front as the summer stock slump continues.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.