Last October the markets were affected by identifiable signs of restructuring. At the start of the month, sorrows with regards to the Trade War, Brexit and the possible slowdown of China's economy were prevailing. However, the focus slowly turned to the economic development of the upcoming year. In this respect, market expectations turned out to be far too negative. The reason was unexpected commitment and support by politicians. Furthermore the communication between USA and China was constructive, thus navigating to a reconciliation. The Brexit still is a cloud over the European Union, although a new election process has been determined and the final Brexit was postponed further to 2020.
Meanwhile on continental Europe, fiscal policy measures slowly find an audience. As an example, France and Germany agreed upon slight versions of cooperation, investments and indirect economic support. This comes as little surprise, because the policy of negative interest rates, which is still favoured in terms of quantitate easing by ECB, starts to weaken the European economic cycle. This negative impact, however, should be avoided.
The role of Austria in this environment is special due to the reelection in September. However, in the background of international markets, Austria has emerged to a best performer in Europe. This is advantageous, because the impact with regards to the "Ibiza Scandal" has discouraged international investors.
This catching-up process takes now a strong effect. Steady but slowly, the investors dare to accept more risk, thus shifting to cyclical, economically sensitive sectors. The valuations of this sectors are still on historical lows. Also the majority of the negative information has already been priced in. Furthermore, one of the largest economies in the world, the USA, is now experiencing a slowdown of the economy. This is certainly a result of the Trade War, but also due to a lack of a prior supporting environment, e.g. share-buybacks or tax incentives. Thus, US investors closely monitor the investment opportunities in Europe, in order to find attractive bargains.
The rest of the year 2019 does not look that bad anymore, as it appeared to be several months ago. Investors believe again in the self-healing process of the market. However, it is clear as daylight that the countercyclical measures will not disappear immediately. None the less the economic sentiment is expected to improve further, which is key of corporate investment activity and steady economic growth. The stock markets should reflect this expectation. By nature, large-cap stocks will be bought first, then followed by small-caps and fundamentally attractive values. Stock picking and a company’s fundamental story will be definitely in the spotlight for investors in the future.
Author:
Wolfgang Matejka, CEFA
Managing Director of Matejka & Partner Asset Management GmbH
6 November 2019
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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.
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