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5 thoughts on Germany’s share ownership culture

29 Mar 2018

5 thoughts on Germany’s share ownership cultureResponsibility – ecosystem for growth

The capital market and share culture in Germany is underdeveloped. The European Union’s largest economy is flourishing and offers opportunities for investors. But how can these be used?

Provide a strong ecosystem for start-ups

A total of 13 companies took the plunge in 2017 and went public on the Frankfurt Stock Exchange. In order for more firms to benefit from this kind of financing, Germany needs a strong ecosystem for growth that allows young companies to develop to the point at which they are ready to list on the stock exchange. Although the Federal government in recent years has encouraged a number of measures designed to improve the situation for start-ups, Germany has lagged behind other countries. Tax breaks for young companies, more extensive use of special funds, grants for young entrepreneurs and support programmes would further strengthen the ecosystem for start-ups in Germany. At the same time, institutional investors need easier access to the venture capital market. Deutsche Börse Venture Network® supports young growth-stage companies, providing a platform for 175 qualified companies to meet roughly 300 national and international investors (as of December 2017). With it, Deutsche Börse AG has created a comprehensive ecosystem whose member companies have closed financing rounds worth approximately US$1.5 billion since the platform was launched, and which has already led to four IPOs.

Facilitate access to the capital market for SMEs

The 2008 financial crisis led to a large number of rules and regulations designed to make the financial markets more secure and more stable. The strict conditions that have to be met before a company can go public and the post-listing obligations are important – but at the same time they discourage many small and medium-sized enterprises (SMEs) in particular from floating. However, this is a basic step in the capital-raising process. Revising current regulations for SMEs, and in particular introducing prospectus simplifications for listings on the regulated market, could make listing a much more attractive proposition for these companies. On 1 March 2017, Deutsche Börse launched Scale – a segment that makes it easier for SMEs to raise finance on the capital market.

Invest in economic education

Business studies are not normally a compulsory subject at German schools. This inadequate education on the topic leads to scepticism about the market economy and entrepreneurship. Germany needs to follow the lead of other countries such as Australia, the United Kingdom and the Netherlands and introduce a national agenda for economic education that teaches macroeconomic and business basics. Deutsche Börse supports a number of initiatives in this area, giving presentations and providing learning materials that provide children and young people of (almost) all ages with a basic understanding of the stock exchange. Retail investors can improve their knowledge of investments at the seminars run by our Capital Markets Academy.

Create more incentives for private wealth creation using equities

In 2016, 14 per cent of Germans owned shares or fund shares – a much lower figure than in other countries. Many come into contact with equities for the first time in the context of share ownership programmes offered by their employers. An increase in the tax allowance on employee share ownership, which is relatively low at present by international standards, would offer additional incentives to select this asset class. Since 2009, share purchases have been taxed at both company and investor level; the total amount levied is almost 50 per cent. Reducing the tax on part of the income from shares would reduce this double taxation.

Integrate more shares in retirement provision

Society is getting older. Taxes already account for around one-third of the financing for statutory pensions today – and this trend is increasing. Private retirement provision using an asset class that offers an appropriate return will give people an adequate income after they retire. In today’s low-interest environment, this type of income can be generated from shares using a broadly diversified portfolio and a long-term investment horizon. Government support for share-based asset accumulation would make a decisive contribution to preventing old-age poverty: measures such as tax incentives for long-term asset accumulation would facilitate this goal.

Go to Deutsche Börse Group’s Annual 2017 for this and more exciting articles.

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