2019 outlook for share markets & the Vienna Stock Exchange

The global economy will see declining growth rates in 2019, with political uncertainties creating downside risks. Ongoing strains caused by the impending Brexit, coupled with uncertainty over Italy’s future budget, are vexing the Eurozone, while the USA/China trade conflict is having a negative effect in general, and even placing pressure on emerging nations. The core countries of Central and Eastern Europe (CEE8), on the other hand, continue to demonstrate sold, above-average growth, though the Vienna Stock Exchange was still unable to escape the downward trend. With the current low level of interest rates, valuations, profit yields and dividend yields remain, in relative terms, attractive, prompting analysts from the Erste Group to predict, in a positive scenario, a moderate outperformance by the ATX next year.

Economic slowdown expected in 2019, relative strength of CEE to continue to bolster  

The economic outlook for 2019 is one of a general slowdown. Consumption growth will continue to be a pillar of support in the Eurozone, while exports and investments are set to level off during the first half of the year. “Early indicators suggest the Eurozone economy will slow from +2% to +1.8% in 2019. Despite this expected economic decline, however, we anticipate better developments, relatively speaking, for the Central and Eastern Europe region, whose average growth will be double that of the Eurozone, at +3.6%”, says Fritz Mostböck, Head of Group Research. Growth forecasts by the Erste Group analysts for CEE8/the Eurozone: 2018e: 4.4%/2.0%, 2019e: 3.6%/1.8% and 2020e: 3.3%/1.7%.

Extreme drops in market price are good times to buy

“Like most other European indices, the ATX is currently on a downward trend and is yet to bottom out. Having a more defensive portfolio is not likely to be a disadvantage during the first few months of 2019”, says Christoph Schultes, Chief Equity Analyst for Austria, “thereafter, the focus will shift more to fundamental data again. We are already seeing good buying opportunities for some – including cyclical – stock, but we need to wait for the end of the consolidation phase.” CA Immo shares continue to be a favourite, while property reserves in Germany and the associated growth potential are easing concerns about a slowdown in sentiment. The Erste Group experts also recommend Andritz, FACC, OMV, Palfinger and PORR shares. “We’re hoping for a return to normality soon. As a small index, the ATX is particularly affected by capital outflows; the fundamentally favourable assessment with a P/E ratio of just over 10x unfortunately plays second fiddle”, says Schultes.

Uncertainties remain, only moderate positive potential following recent market-price losses

2019 is expected to initially remain volatile due to the large number of current geopolitical risks and a fragile economic environment. Posing the biggest risk factor are the consequences of a hard Brexit, which are difficult to assess. In some cases, the markets have recently appeared to factor this in to a degree, at least in terms of the economy levelling off. “Diversified countries, as well as global market leadership in niche sectors, should provide a more resistant basis for Austrian businesses. With the current low level of interest rates, valuations, profit yields and dividend yields remain attractive, prompting us to ultimately predict, in a positive scenario, a moderate outperformance by the ATX next year”, concludes Fritz Mostböck, Head of Group Research.

According to Erste Group analysts, the adjusted profit growth will be slightly negative for 2018e at -0.9%, though it is forecast to be back in the positives again in 2019e at +9.1%. The outlook for dividend yield is 3.9% for 2018e and 4.3% for 2019e.