Similar to a football match, in investing the first half of the year is a good time to review strategy. There have been some remarkable developments in the first half of 2024. The timing and dimension of the expected interest rate cuts have been moved back significantly, especially in the US. Ultimately, the US Federal Reserve will probably make only two cuts this year. The global economy is developing solidly and will show real growth of around 3% in 2024. The situation in Austria and Germany does not allow any conclusions about the global situation.
The Vienna Stock Exchange is still struggling to keep up with the global market in the first half of the year. The main reason for the weaker performance is that the technology sector is only marginally represented in Vienna and the Index is characterised by banks, insurance-, energy- and industrial companies. In the global stock market, the main drivers have been the technology sector, especially the ‘AI hype’, and the capital flows towards mega-caps. On the other hand, it is important to note that the stocks in the ATX Index offer a dividend yield of 5%. Taking this into account, the domestic market achieved a solid performance in the high single-digit percentage range. Valuations of the Austrian stock market remain absolute and in historical comparison favourable. There are attractive opportunities for Value Investors, but they have to be patient. A potential comeback of the Austrian stock market would need a general comeback of the small & mid-cap segment.
Therefore, a global view is important for portfolio construction. Overall, company results are developing solidly - and even better than expected. At the stock market, you invest in companies - not economies. In the exceptional years since 2020, the corporate profits of listed companies have grown by around 8 % p.a. This could be a reasonable expectation for the coming years. Digitalisation and Artificial Intelligence will continue to support profitability, which is an fundamental argument for investing in equities. Gold is celebrating a comeback, partly because many central banks – first of all China - want to reduce their positions in US government bonds and prefer to invest in tangible assets like gold. Industrial metals are also celebrating comebacks. For example, copper will benefit from increasing demand due to energy transition, infrastructure and electromobility in the coming years.
Taking this into consideration, we suggest a positioning - which clearly depends on the individual risk-bearing capacity - of around 45% in various bond segments which offer yields of around 4% (mixed bond portfolio). Another 45 % should be invested in global equities. As mentioned earlier, local overweights and an allocation of less than 50% in the US should be avoided. The remaining 10% should be invested in gold and industrial metals for stabilising the portfolio, further diversification and potential upside.
Author:
Alois Wögerbauer, CIIA
Executive of 3 Banken-Generali Investment-Gesellschaft m.b.H.
1 July 2024
 |  |
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.