There is no evidence yet of a broad deglobalisation of German capital investments, the Monthly Report states. International interconnectedness continues to increase, albeit with a clear shift in geographical focus. German investors are continuing to expand their foreign investment, as evidenced by data on foreign direct investment, portfolio investment and other investment. 

They are increasingly focusing on countries that are more “western-oriented” and closely aligned with the United States from a foreign policy perspective, such as countries in the European Union. By contrast, investment in “eastern-oriented” countries, which are more closely aligned with China in foreign policy terms, has declined significantly. 

Portfolio investment and other investment, in particular, are sensitive to geopolitical changes. According to the report, if a country moves away from Germany in political terms, German capital investments decline markedly in that country. Foreign direct investment, by contrast, has not yet exhibited any such significant responses. This could be due to the fact that German enterprises strategically plan their foreign direct investment decisions over the long term”, the Bundesbank’s economists write. They only react with a time lag to changes in the underlying conditions and initially adopt a wait-and-see approach.”

More foreign direct investment – no indications of a pullback from abroad

German enterprises have continually increased their foreign direct investment in recent years. According to the international investment position, equity capital reached a new record high of €2.3 trillion at the end of 2025. No indications of potential onshoring – i.e. German enterprises withdrawing from abroad in favour of increasing production in Germany – could be identified, the experts note.

They add that German equity capital in “western-oriented” and “neutral” countries continued to increase up to 2023, whereas it has declined slightly in “eastern-oriented” countries lately. German enterprises have recently increased their investment in geographically distant countries on average, while geopolitical distance – measured by different voting positions at the United Nations General Assembly – has been tending to decrease somewhat since 2014. One possible determinant could have been Russia’s annexation of Crimea in 2014. It may have increased German enterprises’ sensitivity to geopolitical risks, the report states. Nevertheless, econometric analyses show that Germany’s geopolitical distance to the respective destination countries had no significant effect on foreign direct investment up to 2023. The responses to recent geopolitical developments, such as in Iran, are not reflected in the data available thus far. However, foreign direct investment often reacts sluggishly to changing conditions, the economists add.

Portfolio investment is more sensitive

Unlike in the case of foreign direct investment, German investors are much more sensitive to geopolitical tensions when it comes to portfolio investment. Since mid-2021, German investors have reduced their securities holdings from “eastern” issuing countries. A strong and growing concentration of German securities holdings can be seen in “western” countries, according to the report. By contrast, investments in “neutral” and “eastern” countries remain significantly lower.

The experts’ analyses show that a greater geopolitical distance between Germany and a partner country is associated with smaller holdings of debt securities issued in that country. This could be because portfolio investment is more liquid and less strategically focused on the long term than foreign direct investment. The Bundesbank’s economists explain that this allows investors to respond more quickly to political changes.

Other investment exhibits significant response

German banks’ other investments (such as bank loans and loans to non-residents) also respond significantly to geopolitical tensions. After the coronavirus pandemic, claims on “western” and “neutral” countries rose significantly, while claims on “eastern” countries declined. 

The average geographical and geopolitical distance in the case of other investment tended to decline, despite significant fluctuations. According to the report, these assets can be reallocated relatively easily, especially short-term loans that are not prolonged at maturity. “Therefore, other investment is, as expected, more sensitive to policy changes than strategic foreign direct investment with high fixed costs”, the economists explain.

Geopolitical tensions determine the structure of Germany’s external assets

The results of the Monthly Report article show that geopolitical tensions affect the structure of Germany’s external assets, particularly in the cases of portfolio investment and other investment. Foreign direct investment, by contrast, has not yet responded significantly to geopolitical changes, but the authors state that it could react with a time lag. The long-term impact of geopolitical tensions on Germany’s external assets remains to be seen.