At the beginning of November, the outlook did not look rosy: Covid cases in Europe and the USA were spiking, leading governments to consider more dramatic measures to curb the spread of the virus. Uncertainty about the US election also weighted on sentiment with some commentators suggesting the possibility for conflicts last seen during the US Civil War...
However, according to an old saying on Wall Street, these times of extreme pessimism are exactly when you should ask yourself: “what’s next? How bad can it really get?” If everybody that wants to sell has already sold, who is left to push prices even lower? Quite often, even a small positive is enough to lift stocks back up. Sometimes we even get a game changer, seemingly out of nowhere that completely turns the market’s psyche on its head. This time around, it was the fantastic news from several international Health Care companies that their Covid vaccines show efficiencies of over 90% (vs. 50-60% for the typical seasonal flu vaccine). This ignited the hope of investors that we could finally see an end to the Covid malaise that had plagued us over the past year and we can get back to some form of “normal” (however that may look like). The main beneficiaries of this sea change were the cyclical stocks like banks, oil stocks and industrials and of course the tourism industry, all of which were hit hard by the economic impact of the pandemic. If you are familiar with the Austrian market, these sectors should clearly ring some bells as the ATX is largely dominated by cyclical companies, that need a strong economy to prosper. Practically overnight, the Austrian market went from a major headache for investors to the place to be with the strong increase in stock prices in November signaling this change.
So, was that already it? Do stock prices in Austria already reflect this improved economic outlook? Not likely as the Austrian market has still significantly underperformed its global peers YTD. If the economic recovery continues, we could see another leg higher for the ATX. After the horrific year that was 2020, a bit of hope and optimism would be a welcome change of pace for all of us…
Author:
Bernhard Haas, Senior Fund Manager, Erste Asset Management GmbH
30 November 2020
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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.