The Austrian economy faces difficult times. Our most important trade partner, Germany, is often seen as the "sick man" of Europe. Especially the automotive industry faces structural challenges: competition from China, excessive regulation and management mistakes, the list of problems is long. Politicians are at best helpless and at worst actively making life more difficult for everybody (e.g. due to stoking the flames of inflation). Looking over the Big Pond also provides little hope as "America first" is quite often interpreted as "Europe last". Does that mean stocks only know one direction: down?
Not at all! Global stock indices are chasing from all time high to all time high. Even the DAX, the index of the "sick man of Europe" was able to rise in the double-digit percentage range despite all the issues the economy faces. Even the Austrian index, which is even more cyclical than its global peers and should thus be hit even harder by the current malaise, was able to stand its ground despite some minor bruises (in the form of several smaller companies that were beaten down badly). Taking a closer look at the Austrian market, we can see that a huge gap has formed between the winners and the losers. Among the former, the banks stand out. Not only did they profit from low risk costs but also first signs of improving loan demand, especially in Eastern Europe.
The losers were mostly comprised of "classic" smokestack industrials like voestalpine, wienerberger and Mayr-Melnhof. Pricing pressure combined with lower sales volume are a toxic cocktail that leads to lower profits. However, despite these issues, the above-mentioned companies have one advantage compared to smaller peers: strong balance sheets. They were able to use the profitable years of the recent past to build a cushion for the "lean times" and get through the current issues without more drastic measures. While this provides little comfort for investors in the short term, looking into the future should provide us with a more hopeful picture.
At some point, the economic environment will get better. Maybe we get a resolution to the war in Ukraine (a positive Trump effect for Europe? At bit of Christmas optimism...), maybe the regulatory jungle will be cleared out or maybe we just get lower interest rates that boost investments. Once we look through the dark clouds of pessimism, we can spot some positive arguments for the Austrian market: historically cheap valuations, solid balance sheets and technological leadership in attractive niche markets. Because even after the darkest, coldest winter, at some point spring arrives...
Author:
Bernhard Haas, Erste Asset Management GmbH
Fund manager
3 December 2024
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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.