30.06.2016
Stock Markets and the Vienna Stock Exchange – Outlook H2 2016
ATX to date weak compared to international benchmarks, Brexit uncertainty continues to irritate
Major CEE countries should continue to be able to generate above-average economic growth. In spite of the current uncertainty with respect to Great Britain's exit from the EU (Brexit), it should be pointed out that the share of the CEE countries' exports to the United Kingdom is small, while their foreign exchange reserves are sufficient to cushion the impact of potential market turmoil. Healthy current account balances and low debt ratios suggest that the risks are relatively modest. Low interest rates make stocks an attractive investment. The Vienna Stock Exchange should have moderate potential to catch up.
- ATX underperforming relative to international benchmarks
- More stable, comparatively better sentiment in the CEE region, minor exposure to UK, euro zone weighed down by Brexit
- Positive growth differential between the CEE region vs. euro zone; average GDP growth in the CEE region in 2016 expected to definitely exceed 2.5% (vs. EZ: 1.3%)
- Valuations attractive in relative terms (fwd. P/E 2016e: 11.7x, fwd. P/E 2017e: 10.0x)
- (Distorted but) intact earnings growth (2016e: +176%; 2017e: +17%), attractive dividend yield (2016e: 3.5%, 2017e: 4.0%)
- Stocks obviously very attractive relative to 10 year government bonds (P/E 16e/17e: 890 bps spread)
- Stable trading volume and balanced interest by foreign institutional investors
- Top Picks
- Real estate stocks: S Immo, CA Immo, conwert
- Construction stocks: Porr, Palfinger
- Dividend stocks: Lenzing, Oesterreichische Post, Kapsch TrafficCom
The Vienna Stock Exchange continues to be dominated by developments in Central and Eastern Europe (CEE) - it has however come under unjustifiably great pressure due to the influence of exogenous events (China, Brexit).
Most of the companies in the ATX Index generate their revenues and earnings in CEE countries. Weighted by market capitalization, this currently applies to approx. 71% of the ATX. The remaining companies are essentially either successfully active in international niche markets, or are focused on Germany, resp. the domestic market in Austria. “In the current Brexit chaos, it should be noted that the share of CEE countries' exports to Great Britain is comparatively small. Moreover, their central banks hold sufficiently large foreign exchange reserves to be able to cushion the blow of potential market turmoil. The major CEE countries – which companies listed on the Vienna Stock Exchange are benefiting from – will continue to exhibit a solid and sustainable growth differential relative to the euro zone average. The current mixture of global conditions argues in favour of the CEE region, and suggests intact, if only moderate catch-up potential”, notes Fritz Mostboeck, Head of Group Research.
Fritz Mostböck, Erste Bank © Thomas Preiss
Relatively better sentiment in the CEE region, as well as attractive relative valuations suggest in principle that there is catch-up potential. However, the global economic and political situation remains tense. In the emerging markets segment, primarily countries like China, Brazil and Russia – but also Latin American and Arabic countries – remain under pressure, not least due to low commodity prices. “Even if the pricing in of downside risks as a result of the Brexit is taken into account, average GDP growth in the CEE region in 2016 should reach more than 2.5% (compared to 1.3% in the euro zone). In an environment of extremely low interest rates, P/E ratios, earnings growth and dividend yields are signalling that the catch-up potential for the Vienna Stock Exchange in 2016 and 2017 remains intact”, Fritz Mostboeck explains in closing.
Erste Group Bank AG/ Erste Group Research
Fritz Mostböck, CEFA +43-(0)50100-11902
Head of Group Research
Christoph Schultes, CIIA +43-(0)50100-11523
Senior Analyst CEE Sector Research
