Vienna market has its special features – that is not a new fact. In order to comprehend the Vienna Stock Exchange it is important to know the influencing factors for drawing the right conclusions. The three substantial criteria are: How are major bank, highly weighted in the index, positioned? What are the conditions in Eastern Europe? How do international investors behave?
Over the last couple of years we've often read discussions concerning domestic major banks in european economic media – often very simplified and painfully superficial. This fact has positively changed in the recent past. ERSTE Bank has consistently reduced its non performing loans and RBI performs its transformational process. Conclusion: The lights turned to "green".
Economic growth in the CEE-Region (Central and Eastern European Countries) will reach about 3% in 2017 on average. The economic situation in this region is better than perceived by media. Merely Russia remains a political outlier – but has also stabilized. Many international investors are linking their Austrian investments to their opinion on Eastern Europe. For many homebased companies that's a logical consequence, but for foreign investors, Eastern Europe is still a niche and just one of many markets in the global environment; that´s the point. Also these lights turned to "green".
Round about a quarter of investors on the Vienna Stock Exchange is domestic-based. Roughly three quarters are from abroad – ranging from the USA, the UK and many countries from the EURO-Zone to the Norwegian Sovereign Wealth Fund. For the Vienna Stock Market it is essential how this important group behaves and reacts. This fact is more important than domestic capital flows or private investors sentiment. Conclusion: The third light turned to "green". With a dividend yield of almost 3% on average, Vienna is still attractive to this group of influential market players. Fundamental key figures like P/E or P/B are still below the values of the international indices. There is no secret, that when markets turn expensive, the hunt for yields starts at smaller and less-developed markets; changed macro-data in Eastern Europe and a stabilized domestic banking-sector additionally inspire the sentiment.
Recently, domestic economic expectations were revised upwards beyond the 2%-GDP-level. Earnings came in above expectations with very few outlier. Property-stocks remain a hot-spot, as there is still value compared to their book-value. Insurance companies are an attractive "dividend-play", but not a classical growth story (any more). Besides these examples, there are companies such as voestalpine, Lenzing, Palfinger, Strabag or Agrana, with plenty of growth-prospects in their specific niche.
Therefore the probability is high that the domestic market will continue the recent phase of outperformance in relation to the broad international indices in the further course of the year. But this is not a reason to relax. The international constellation of politics and central banks, which must end the liquidity flood eventually, can trigger corrections at any time.
Author:
Alois Wögerbauer, CIIA
Executive of 3 Banken-Generali Investment-Gesellschaft m.b.H.
5 July 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.