The dust has yet to fully settle from the emissions scandal that hit Volkswagen in late September. That caused the company’s share price to fall by more than 30% and prompted a widespread sell off in the German automotive sector.

At first, investors indiscriminately cut exposure to automotive companies. Not us. Of course, we have not been invested in Volkswagen since October 2014, but we reasoned that as the controversy had to do with a single model of VW’s diesel engine, there was a higher probability that it was a company specific issue, rather than industry wide. The recovery in share prices for German carmakers at the beginning of October suggests that others may be starting to think along the same lines.

We do not think that the actions of a single company should tarnish the image of Germany’s entire industrial sector. We are confident that companies with solid fundamentals, strong branding, diversified product portfolios and with exposure to the recoveries in the US and Europe will see a better performance come through as the market fully digests the VW scandal and stabilises.

Opportunity out of adversity

For us, the market dip has been an opportunity to buy into the companies that we believe have excellent growth prospects but at more attractive valuations. This includes Daimler, the luxury and commercial vehicle manufacturer. The company enjoyed exceptionally strong sales in the third quarter and we think it might even gain market share as the VW issue alone is unlikely to dampen overall demand for car purchases.

We have no lack of confidence in corporate Germany. In fact, we are markedly positive about the many company opportunities that we see in today’s market. Germany’s industrial sector is an exporting powerhouse that has long been the envy of its neighbours and the VW issue alone is not going to change that.

While there has been some concern about the impact of a China slowdown on German exporters, our company research and the conversations we are having with corporate managers lead us to believe that such concern is disproportionate to the actual threat. We note that many German companies have expanded in China even amid the economic slowdown.

In the meantime, business activity in Germany and in wider Europe is showing signs of strength not evident in years. In this environment, we will continue to look beyond any short-term volatility and to invest in companies that we believe offer the greatest potential to deliver outperformance over the longer term.

While we do not expect significant market weakness ahead, such an event may present further buying opportunities. We favour companies that possess quality management, solid balance sheets and strong franchises. In addition, we look for opportunities that offer attractive earnings growth and healthy upside to current valuations. And from our vantage point, there continue to be many such opportunities in corporate Germany today.

Robert Smith is investment manager of the Baring German Growth Trust