The Vienna stock exchange has been on the rise in 2021 as well. In the year to date, the performance has been hugely positive, picking up from where it left off in 2020. Cyclical companies and so-called value shares are in high demand in the current environment. These stocks benefit from the expectation of a possible end of the COVID-19 crisis which should lead to an economic upswing. In the wake of the global equity markets, equity investors at the Vienna stock exchange benefit from rising company earnings and the still expansive monetary policy of the global central banks.
Fundamentals massively affected by the COVID-19 crisis
The fundamentals of the Austrian economy have been massively affected by the COVID-19 crisis since its outbreak. According to Oesterreichische Nationalbank (Austrian National Bank, OeNB), the Austrian GDP for the twelve months since the coming-into-effect of the first lockdown was on average 8.5% below the referential figure of the previous twelve-month period. The losses in value added in this period add up to about EUR 40bn. But the OeNB indicator also shows that the economy tends to recover quite quickly as soon as containment measures are lifted. The economic recovery expected for that period is being anticipated by rising share prices.
Positive influence of the monetary policy
The positive trend on the stock exchange is supported by the monetary policy of international central banks. The risk of interest rate hikes seems to be contained for a while, despite the persistent discussion about emerging inflation.
Rising interest rates would make savings deposits and bonds more interesting again. The president of the central bank that tends to give directions in such matters, the US Fed’s Jerome Powell, said that despite a stronger economic uptick the economy was still far off the central bank’s declared targets for employment and price development. In other words: the monetary policy remains unchanged. The key-lending rates will be hovering around zero until 2023. The ECB has no reason to go against the US interest rate policy.
This environment continues to support equity markets in what has been years of a bull market (briefly interrupted only by the shock of the first wave of COVID-19). The vaccination regimes across many countries of the world should help take the pressure off the healthcare sector and give hope for a return to normalcy after the COVID situation.
Positive equity trend remains intact
The ongoing recovery of the global economy – especially in the USA and China – is regarded as the main driver of the stock exchange boom. This is complemented by massive stimulus packages that could accelerate consumption and the industrial sector even more. Setbacks and price corrections like recently with technology shares or overvalued shares are considered normal in this environment, as is the taking of profits. Good timing is among the biggest challenges on the stock exchange.
Author:
Paul Severin
Member of the ÖVFA Board
Head of Communications Erste Asset Management
13 April 2021
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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.