It was one of the hottest stock markets in 2015. In fact, this market gained more than 25% in the first four months alone, compared to the paltry 2.1% the S&P 500 returned over the same time frame.
But, in the last two months, it has done the opposite. Instead of being a top-performing index, it is now one of the world’s worst-performing stock indexes, falling 11%. The panic is not grounded, however, and this sudden correction is an instant buying opportunity that you need to be ready to jump on.
I’m referring to the German stock market. It was the place to put your money at the start of this year.
Earlier this year, the European Central Bank (ECB) embarked on its own version of quantitative easing, helping to send European economies into recovery mode — one that topped analyst expectations left and right. But worries over the financial stability of a tiny European nation have sparked a sell-off in the euro zone, causing the German stock market to suffer a correction.
Now is not the time to sell. It is an excellent opportunity to buy on the dip.
Even though I believe the German stock market rebound will be one that benefits all of its stocks, it’s prudent to target a few that will likely outperform the broader index.
To do that, I am looking at Munich Re (DB: MUV2) (MURGF)— the world’s biggest reinsurer.
Before I get into more about Munich Re, let me first explain why the German stock market is set for a bounce back in the coming weeks.
Future of the Euro Zone
The increasing risk of default in Greece is adding to Germany’s sell-off. But, as our Investment Director Jeff Opdyke has explained before, Greece and the rest of the euro zone will reach a compromise rather than allowing Greece to leave:
The Greeks cannot abandon the euro, and Greek polls show that Greeks in large — large — numbers know this. Doing so would be disastrous. The new Greek currency would plunge relative to Europe, China and the U.S. Payments on Greek debt would spiral beyond the government’s ability to pay, so Greece would collapse into default, crushing Greek citizens who would be unable to retrieve money from a banking system in chaos … and with the money they do have would be incapable of affording goods that are suddenly expensive beyond measure…
[The Germans] cannot afford for Greece to leave the euro zone. A Grexit — as a Greek exit is called — would raise questions about the legitimacy of the euro zone and the currency. And Germany must have the euro zone in place to maintain the fuel that drives the German economic miracle. Without the euro, countries all across Europe would not be able to afford German products because the currency disparities would make German goods too pricey in local dinero.
