For years positive market trends have been existing. And they were able to continue in the year 2017 – at least until the end of November. S&P500, Nasdaq Composite, DAX, Hong Kong Hang Seng Index, Nikkei 225 or ATX. Most of the markets benefit from the attractive environment for corporates. Global economic growth stays benign – and even more, it is supported by a high number of countries. Even macro politics and events like reduction of expansive monetary policy (Fed an ECB are going to take concrete but very cautious and prudent steps), all kind of political tensions triggered by new initiatives (announcements and acts from North Korea – changing reactions from the USA), new ambitious leaders in Saudi Arabia or events within the USA (reform of NAFTA, tax reform and health reform) were and should not be able to reverse the trends on the stock exchange. In past years this kind of news led to buying opportunities. The macro situation and fundamental data of companies were and are positive and support the market.
What could be reasons for possible corrections on the stock markets?
- Climbing interest rates? For 2018 it is not likely to be a trigger for a market correction, as steps will be taken very cautiously.
- Reduced growth of profits? Rising costs (increasing wages, prices for energy and commodities) could put pressure on profit margins.
- Political events? Surprises in political business are a permanent possibility. News which moves the market could come from the US (possibly potential consequences from the investigation of influencing elections by Russia are underestimated). Concerning tax-reform a market-friendly solution should be found in the coming quarters (Mid-term elections are set for autumn 2018).
What are the effects for the Austrian stock market?
- Climbing interest rates: The financial sector in the ATX weighs around 35%. These kinds of companies usually benefit from increased interest rates. On the other hand this could lead to disadvantages for property companies.
- Reduced growth of profits: For local companies pressure in terms of costs (especially for industrials) could become more intense. Nevertheless Materials- and energy sector could profit from risen commodity prices.
- Political events: Austrian companies, which are focused on regional markets, generate most business in Europe. Globally acting companies have to deal with increased political risks, but have proven a robust business model.
Certainly possible risks should not get out of sight, but there is a high amount of arguments which support a positive market environment.
Author:
Bernhard Ruttenstorfer
Senior Fund Manager
ERSTE-SPARINVEST KAG
29 November 2017
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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.