Since the beginning of the year, international share price indices have fallen by up to 20%. This development has largely been mirrored by the shares listed on the Vienna Stock Exchange. Uncertainties originated from China, the commodity exporting emerging markets and the falling oil price. But the enormous geopolitical tensions and the insufficient cooperation between the member countries of European Union also played a role (e.g. the refugee crisis and the possible exit of the United Kingdom from the European Union). Still, the economic outlook remains moderately positive. Although this is clearly the way to go forward, the reorientation of the Chinese economic model from export-driven growth towards domestic demand-based growth is prone to uncertainties. The low oil price supports European consumption and is caused by supply factors rather than by demand. The deflationary impact of falling oil prices on consumer prices is lessening due to the fixed rate gasoline taxes. Also, oil exporting countries seemingly try to move back to a more active role in managing oil price again. A further easing of monetary policy in the euro zone and a slower than anticipated tightening in the USA should somewhat drive up inflation expectations. Stocks allow for investments in the productive capacities of the moderately growing economy. Especially in times of high volatility, however, investors need to make sure their investments are plan-based and sufficiently diversified across industries and asset classes. Stock investment remains attractive as many other asset classes clearly have their limitations in the current environment. Gold shows highly volatile price developments, does not pay interest and currently offers little return potential, because inflation is very low and there is not much leeway for a further decrease in interest rates. Fixed income securities similarly offer little perspective as current yields are very low and the risk of falling prices is present, once interest rates start increasing. Finally, the Austrian real estate market, although it has not yet formed a price bubble, is no longer undervalued. In addition, many investors own the houses they live in and thus face a risk concentration anyway.
Author:
Uta Pock
Head of Research
VOLKSBANK WIEN AG
2 March 2016
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.