The general impression that the US stock market is the only one delivering significant performance is actually incorrect. The American market may be exceptional, but there are other exceptional markets too – and Germany is one of them. Of course, the starting point of such a study matters. Depending on where you start, the US might come out ahead – or not. But over the long term – 18 or 20 years – our study shows that German stocks have generated returns comparable to those of US stocks, which everyone watches closely.

Yes. Why did I choose this particular period? Because I wanted to include two key moments in German history that involved major government spending. The first is what’s now referred to as the „economic miracle“. I don’t actually believe it was a miracle – I think there were concrete reasons behind it, which also benefited German stocks. The second moment was reunification and its aftermath. Again, we saw significant public spending and strong returns from German equities in the years that followed. But even if we look at a shorter period – say, the last three years – we see that German stocks have delivered similar or even better results than US markets. That’s also due to the quality of some individual German companies. And if you have positive GDP growth, that should further boost corporate earnings.

Yes. We’re seeing German stocks generating returns not too far from those of leading US equities. If I look at recent history, everyone talks about the „Magnificent Seven“ and US tech, but when I look at some companies in Germany’s tech sector – SAP, Deutsche Telekom – they’ve also delivered strong results. And it’s not the only sector performing well. The same goes for finance: Allianz and Munich Re have produced performances not far off from the most popular US stocks. The industrial sector, too: Siemens, Siemens Energy, Rheinmetall.

Let’s look at where we are in the economic cycle. The US economy is more or less at the peak of its cycle. It has grown strongly for a long time. What some call US exceptionalism has really taken shape in recent years. Since about 2015, the US has been the only region with consistent economic growth. While China dealt with its real estate slump and the bursting of the global commodities bubble, Europe had its own challenges. The US, by contrast, benefited from the shale oil boom, which boosted productivity. Then came heavy government spending. Under Trump, we saw tax cuts in 2016. Under Biden, post-Covid programmes pushed deficits even higher. Add to that strong immigration, which supported consumption, and the AI revolution, which boosted investment. It was a boom in the US. But now the US economy is slowing down. The labour market is very tight. We’re nearing the end of the cycle.

If we look at Europe, especially Germany, which has seen stagnation and even slight negative growth over the past three years, we’re now expecting a recovery phase. A year ago, the ECB began cutting interest rates. We’re seeing a revival in credit flows – households and companies are taking out more loans. That means future growth – investment, consumption. In the US, growth is slowing, while Germany is at a different point in the cycle and beginning to rebound. Add to that the spending plans announced by Chancellor Merz: hundreds of billions of euros in fiscal support for infrastructure. That’s about 1% of GDP. On top of that come defence expenditures – another 0.5 to 1% of GDP. This leads to what we call a multiplier effect. Investing in infrastructure – especially digitalization and transport in Germany – yields productivity gains and positive spillover effects.

For example, if small and medium-sized businesses get better internet access – more broadband, more high-speed connections, greater digitalization – this will promote growth with high productivity. What we can expect is that Germany’s potential growth could actually double. In the long term, growth could accelerate by 1% annually due to these investments and exceed the average growth in the EU. Another important point is that this time, public spending isn’t just a short-term response to a shock – like Covid or the financial crisis – but will be spread over the next ten years. That’s our outlook for Germany – and why we’re so positive on German equities. I wouldn’t be surprised if Germany’s economic growth outpaced the US in 2026 and 2027.

The obvious answer is defence companies, which will benefit from the government spending. Then I think many industrial firms stand to gain. Siemens, for example, is the global leader in automation. They also have a significant rail business, which should benefit directly from infrastructure investments. There are also some construction companies that could profit. And when a country sees more economic growth and sentiment improves, people spend more – that also supports the banking sector. Earlier, I mentioned that some German stocks have posted returns close to the „Magnificent Seven“. These are mainly companies we call „global leaders“. Siemens is a world leader. SAP, too.

As I mentioned, Germany’s GDP growth could exceed that of the US. I believe that EPS growth – earnings per share – could also be higher for German companies than for American ones.

Yes, some of them. You need to look at which companies are strongly tied to the German economy. On the manufacturing and industrial side, that’s primarily France and Italy. In France, for example, a company like Schneider Electric comes to mind. They’re active in industrial automation and non-residential construction electrification. Some Nordic banks might also benefit.

Well, there are also areas where one should be cautious. First, there’s a time lag between when Merz announced the spending plans and when the funds are actually deployed. We’ve spoken with several CFOs, and they expect the effects of the German infrastructure package to show up in their revenues only in 2026 or 2027 – it takes time for these things to unfold. That’s something to be mindful of, since financial markets can be very impatient.

The other issue is that more economic growth tends to bring higher bond yields. I’m talking about 10-, 20-, 30-year yields. These have already started reflecting that. In this environment, rising yields can act as a headwind, even though falling yields act as a stabilizer. That’s why we’re focusing on quality growth and quality companies – those with solid fundamentals. Siemens is a great example: it’s been around a long time, carries manageable debt, and isn’t overly sensitive to rising bond yields.

Kevin Thozet is a member of the investment committee at Carmignac. He joined the asset management company in 2019. He began his career at AXA Investment Managers. In 2011, he moved to Edmond de Rothschild Asset Management, where he worked as a product specialist in asset allocation and sovereign debt and later as head of product specialists. Thozet holds a master’s degree in business administration from Université Paris-Dauphine and a bilingual master’s in journalism from Université Paris-Sorbonne.