Outlook Stock Markets & Vienna Stock Exchange 2018

Mostbock: “ATX has potential to reach 3,600 points in 2018”

• ATX clear outperformer internationally in 2017
• Stocks still attractively valued versus 10-year government bonds
• Trading volumes are gaining ground and foreign investors showing livelier interest

Strong global economic growth puts shine on emerging markets and these are profiting from capital inflows. The core countries of Central and Eastern Europe (CEE) are still posting above average growth rates. Political uncertainties in the euro area have largely abated or shifted. In this environment, CEE and Austria have proven to be guarantors of economic stability. Healthy current accounts and low debt ratios highlight the solid starting situation. Low interest rates and earnings growth indicate further, albeit moderate, potential for price gains on the Vienna Stock Exchange despite the advanced valuations.

CEE as key driving force

Weighted by market capitalization (incl. the new BAWAG issues), around 80% of ATX companies earn a considerable share of their revenues and earnings in CEE countries. The economic and sectoral diversification is the main driver behind a generally more robust economic development. “The good economic development in the euro area and in the US, and the stabilisation of commodity prices has helped to bring about a renaissance of the emerging markets. This setting is supporting the capital flows into the countries of Central and Eastern Europe as a region and these inflows are the main ingredient of the ‘CEE cocktail’. Healthy current accounts, sufficient currency reserves and a low rate of debt also contribute to the strong development,” explained Fritz Mostböck, Head of Group Research.

Banks and technology stocks in the limelight

“The promising economic outlook is fuelling optimism on stock markets. We believe that the strong demand for technology stocks will also continue in the coming year. The AT&S stock is expected to profit from this trend despite the latest price gains. Apart from this, we are again bullish on banking stocks and other cyclicals, but investors shouldn’t lose sight of the valuations,” said Christoph Schultes, Senior Analyst for CEE Equity Research. “Banking stocks are benefiting from the generally positive economic environment and also from a probable shift in the yield curve. CEE is growing at a remarkable pace, therefore, RBI remains attractive.”  Some stocks have become even more appealing in the view of experts due to the latest price drops.

“These include STRABAG, Agrana and Lenzing,” added Christoph Schultes, “but in the case of the latter two, investors should keep an eye on commodity prices.”  The UBM stock is still attractive. Despite the risk of rising interest rates and the gloomier sentiment this causes, real estate stocks are still topical in Austria. “The discounts versus the NAV are not at all justified for the Immofinanz and CA Immo stocks. Especially the latter should continue to develop well due to the highly attractive portfolio,” said Christoph Schultes. Investors with a focus on dividends are recommended to look into Österreichische Post and UNIQA in the opinion of Erste Group experts.

Starting situation still encouraging

Positive fundamental factors such as economic growth and highly satisfactory profit trends are already effective and the Vienna Stock Exchange is the clear outperformer. “Nonetheless, in the current positive environment stocks remain attractive and economic and earnings growth as well as the low interest rates are bolstering this trend. Rising trading volumes confirm the growing interest in the Viennese stock market. The outstanding development of the economy and stock markets of the current year will be hard to surpass in 2018. Still, from today’s perspective we believe there is further potential for stocks, though at a much more moderate level,” explained Mostböck.