The ATX increased by more than 9% in 2016, outperforming most other European indices. Since our assessment of individual characteristics of the Austrian equity market remains positive also at the beginning of 2017, even more lights are on green now from a top-down point of view.
First and foremost, Eastern Europe is seen in a more optimistic light – both economically and politically. The core countries of Eastern Europe are likely to achieve robust economic growth of some 3% also in 2017 and the positive growth differential vs. the Eurozone that has been sustained for several years will probably continue. Investors can therefore benefit from significantly improved economic stability in the region. Also the political risk factors are known and stable – and hence assessable: international investors that do not directly invest in CEE equities often take Austrian companies as proxies for the region due to their high sales exposure, so that Austrian shares are attracting increasing attention. With the Russian recession expected to come to an end and a possible softening of sanctions against Russia, the region in general and individual companies with strong exposure to Russia in particular are likely to benefit. In addition, the market environment for the financial industry is brightening slightly thanks to the expected steepening of the yield curve. Therefore the high aggregate index weighting of banks and insurance companies in the ATX (roughly 30%) has a positive bearing on market analyses. Moreover, the longer-than-average duration of the current bull market suggests that we are approaching the end of this cycle, and so-called small- and mid-cap markets traditionally outperform blue-chip indices when business and stock market cycles are nearing completion. This could also increase investor appetite for Austrian shares.
The ATX is currently valued at a P/E ratio of just below 13 for 2017, which means that the valuation discount is a bit more pronounced compared to the average of the broader-based European market in the past 10 years.
In our opinion, the main topics for the Austrian equity market in 2017 will be the following: the effects of EUR depreciation vs. the USD (for ATX companies gains on USD exports outweigh partially higher input costs) and the slight increase in inflation expectations – and hence the steepening of the yield curve (which should on balance have a positive influence on the financial industry), potentially more intense M&A activities in Europe (the Vienna Stock Exchange has both targets and active consolidators), risks with regard to China and Asian emerging markets (little direct influence on Austrian companies), political risks (above all new elections in Italy), headway in connection with Brexit negotiations (important for companies with a high share of UK sales) and positive effects of increased fiscal-policy stimuli in Western and Eastern European countries (expected positive bearing on the construction and consumer industries).
Author:
Stefan Maxian
Vice President of ÖVFA
Head of Department Company Research
Raiffeisen Centrobank AG
13 January 2017
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.