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European investors are more familiar with manufacturing than mining — but electric cars are driving a growing interest in ASX resources stocks, says small cap expert Stefan Müller, CEO of Frankfurt-based consultancy DGWA.

What is driving European investor interest in Australian small caps?

Countries like Germany have invested heavily in developing electric vehicles, particularly as domestic industries were hit with the manufacturing shift to China.

With that, there is an substantial increase in interest for battery metal stocks – most of which are listed on the ASX.

The resources industry is new to most of the European investors. We know cars and manufacturing but resources are still very foreign to most in the market.

Companies like European Lithium (ASX:EUR) are based in Europe – in this case Austria – and listed in the ASX as well as in Frankfurt and Vienna.

As a consequence of our involvement in the company, almost 70 per cent of the free float is now in European hands. Compared to the rest of the sector the stock is trading with high volume but very stable here in Europe.

There is also a lesser number of public companies in the European Union, compared to the likes of the UK, US, Canada or Australia.

Most businesses are instead financed by banks and private investors.

When talking about production, Australian mines are held in high regard as well.

Australia is known for its strict rules – unlike south American or the Democratic Republic of the Congo – and are preferred by big companies when it comes to offtake (sales) agreements.

Manufacturers are willing to pay more for good ethics. It will just mean that profit margins are a little lower.

Due to stricter laws regarding sustainability levels in the whole value chain, manufacturing companies will prefer first-world mining projects even more in the future.

Which ASX sectors are the most attractive to European investors?

The key is drawing ties to Europe – regardless of where the company is based.

Even if you have a highly prospective gold mine in the middle of Australia, that makes no sense to a European investor. But the minute you start talking about electric vehicles (EVs) there is renewed interest.

Australia has a very good reputation for mining know-how — and combined with German engineering it’s a perfect combination.

The automotive industry is our bread-and-butter business so it is only fitting that we are at the forefront of the developments with EVs.

Cars are the number one industry topic in Europe. Every single day we are seeing more and more car-makers entering the EV business.

It permeates into everyone’s daily life because people are considering an EV and millions of jobs are related to the automotive industry.

How do Australian investors differ to European investors?

At their most basic, Europeans are investors while Australians are traders.

The way that European investors evaluate a company is completely different to how an Australian investor would.

When a German investor buys a stock it is a wedding. When an Australian does the same it is a one-night stand.

If you treat the European investor well, they will never sell. They are more in it for the story and want to watch the progression over time.

Historically, we have not had as much activity in our market. There are not as many companies listed and those that are do not trade as much.

Australians have many more stocks in the sector and generally investors are more familiar with the broader market. That means they are quick to buy and sell on rumours while Europeans need the full story.

What do European investors look for?

Investors request different services and they need to be educated. If a company comes out with a typical ASX presentation with tables of drilling numbers it will fall flat on the European investor.

Courting a European investor requires a story – and they will usually try to enter in a mid-to-long term partnership.

ASX investors are often trading for their retirement. Over here they don’t need to.

They buy into funds and have their government-guaranteed salary when they retire so there is not as large of a trading culture in the market.

 

Stefan Müller is the CEO of DGWA, the German Institute for Asset and Equity Allocation and Valuation – based in Frankfurt. The company is one of the leading German Corporate Boutiques for global small and mid-cap consulting and investments.

DGWA’s management team runs a 25-year track record in trading, investing and analysing SME’s around the world. It has been so far involved in more than 250 IPOs, financings, bond issues, dual listings and corporate finance transactions as well as corresponding road shows and awareness campaigns.

Mr Müller is holds degrees in Engineering and Business Studies. He studied at the European Business School in Oestrich-Winkel, the Paris Business School, Thunderbird University in Phoenix and graduated with a Diplom-Kaufmann and a Diplom-Betriebswirt.