"Government subsidies are the primary factor fuelling profits for these DAX companies, according to a Financial Journalist's cautionary notice"
Profitability of Some DAX Companies Linked to State Subsidies, Says BÖRSE ONLINE Editor-in-Chief
In a recent speech at the German Fund Congress in Mannheim, Frank Pöpsel, Editor-in-Chief of BÖRSE ONLINE, expressed concerns about the role of state subsidies in the profits of DAX companies. Pöpsel claims that subsidies play a significant part in the earnings of these corporations, particularly in sectors like renewable energy and technology.
According to Pöpsel, companies such as Adidas, E.ON, and RWE have benefited greatly from government support, with subsidies contributing to a considerable portion of their pre-tax profits. For example, at Adidas, one-fifth of profits from 2016 to 2023 can be attributed to subsidies, while E.ON saw over half of its pre-tax profit during the same period derived from subsidies. At RWE, subsidies have consistently flowed in, exceeding the company's ever-earned profit.
When discussing EU subsidies, Pöpsel highlighted the potential costs of bringing Ukraine into the EU, stating that around 17% of the entire EU budget could be allocated to Ukraine if it were to join. This would equate to 130 to 190 billion euros in total, according to estimates from economists at the IW Cologne.
Investors seeking less subsidy-dependent options might consider companies listed on the MDAX index, such as Wacker Chemie and Phoenix Contact, which have a substantial domestic revenue base. Additionally, German mid-caps are often associated with innovative sectors like semiconductors and industrial technology, which are less likely to rely heavily on state subsidies for their operations.
When evaluating investment options, a diversified portfolio across various sectors can help mitigate the risks associated with subsidy dependence. Investing in mid-cap stocks can also provide a safer alternative with less exposure to global market fluctuations and subsidy risks. Thoroughly researching companies is key to identifying those with sustainable business models that are less reliant on government support.
Investors keen on less subsidy-dependent businesses could consider mid-cap companies like Wacker Chemie and Phoenix Contact, which have a robust domestic revenue base and are less likely to rely heavily on state subsidies. Moreover, diversifying investments across various sectors can help reduce risks associated with subsidy dependence when creating a portfolio.
