Equity markets had a very good year in 2019. The broad-based US market (for which the proxy is the S&P 500 Index) increased by 29%, hitting new all-time highs. The Eurozone benchmark Euro STOXX 50 also climbed by a whopping 25%, and the ATX gained 16% (including dividends the index yielded 19%). In our opinion, the underperformance of the ATX is due to different sector weightings: banks and energy are heavyweights in the ATX, and these sectors performed less stellar also internationally. By contrast, shares from top-performing sectors such as technology and retail are few and far between in the ATX.
In 2019, the league table of ATX top performers was led by S Immo (+53%) thanks to the low interest rate environment and takeover speculations. Wienerberger was the runner-up (+47%), which thrived on the strong construction economy in Western and Eastern Europe, ahead of CA Immo (+36%). The performance laggards were SBO (-16%), followed by Andritz (-12) and FACC (-5%).
The road to such a strong performance in 2019 was fraught with obstacles, though. The mood was not always good due to the trade dispute between the USA and China, Brexit uncertainties, recession fears in the industrial sphere (above all in the automotive sector) and increasing tensions in the Middle East. Eventually the bulls prevailed, likely driven by renewed monetary easing by the ECB and the US Fed, which nurtured hopes of economic stabilisation and made corporate refinancing less costly.
Since the expansionary monetary policy bias remains in force, there is a lack of investment alternatives so that we maintain our constructive view on equity markets for 2020. Leading economic indicators are expected to stabilise and continue to lend support. Austria's economic growth is likely to be no more than similar to the growth rates of other Eurozone countries in 2020. That notwithstanding, listed Austrian companies have higher CEE exposures and should benefit from above-average growth in the region.
The coalition agreement of the new Austrian government contains several objectives relevant to the capital market, such as a cut of the corporate tax rate from 25% to 21%, reductions of the lower income tax brackets and of the capital gains tax, abolition of the withholding tax on sustainable investment products as well as potential CO2 taxes. We anticipate the corporate tax cut to translate into a mid-single-digit aggregate earnings increase for ATX companies, which should support results trends in 2021.
We expect ATX earnings to grow by some 5% in the current fiscal year 2020, corresponding to a P/E valuation of the ATX of roughly 11.5x for this year. In other words, the index displays a valuation discount of about 9% vs. its 7-year average. Also by historical comparison there is a relatively high valuation discount vs. the broader European equity market. Nevertheless, the strong performance of the past quarter limits the potential for positive surprises in the next few months because we do not expect major revisions of earnings estimates for 2020e and 2021e. Our ATX target is 3,360 points, i.e. there is upside of some 5% (or a yield of 8-9% including dividends).
Author:
Stefan Maxian
Vice President of ÖVFA
Managing Director Company Research
Raiffeisen Centrobank AG
10 January 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.