Should You Buy Low on This German ETF?

The German economy has frequently been heralded as the engine of Europe and has historically been robust even in the face of global turbulence. Global economic headwinds and a worsening trade war have curtailed Germany’s growth.

It saw its economy contract 0.1% in the second quarter, and current forecasts have another contraction on tap for the third.

This would mean the German giant would officially enter a technical recession. A decline in manufacturing activity, which drives around 20% of Germany’s economy, is a major concern.

Bigger yet is the risk surrounding Brexit, which has confounded lawmakers in Britain as we approach the October 31 deadline.

These factors make the iShares MSCI Germany Index Fund (NYSE:EWG) a dicey proposition in early September. The ETF has only dropped 1% over the past three months, but broader economic headwinds present a risk right now.

Some of the top holdings in the fund include Allianz, a Munich-based multinational that operates in the financial services sector. Siemens is one of the top three holdings in the fund, and the conglomerate faces headwinds in the manufacturing space. In its most recent earnings report, Siemens reported sales and orders decline in its digital industries segment.

Germany is set to battle harsh economic conditions in the coming weeks and months. This ETF is not near discounted enough for me to jump in at this stage. The German economy will inevitably bounce back, so I’m monitoring this one for a better entry point.