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Equity Research Austria Outlook for 2011:
Vienna Stock Exchange to continue trending sideward next year

  • Despite a trend of positive revisions to corporate earnings, the Austrian stock market remains volatile due to a number of uncertainties
  • In 2010 the ATX outperformed many international indices, but is still a long way from its pre-crisis level
  • Strategy: In view of continued uncertainty, investors can only achieve attractive returns on stocks by "cherry picking."

Although the ATX has put in a positive performance in the past 11 months, outperforming many international indices such as the Eurostoxx 50 or the Nikkei, it still has a long way to go until it returns to its pre-crisis level. Opening the year at 2,495 points, the index peaked at 2,800 in April before slumping to its lowest level this year in June at 2,200 points. The ATX currently stands at 2,680 points. With this change the leading index on the Vienna Stock Exchange is essentially mirroring the trend on other stock exchanges which are showing sustained volatility despite an improved macro-economic environment. The reasons behind the sideways movement of the ATX, a trend UniCredit Equity Research Austria believes will persist in 2011, are continued economic uncertainty, structural problems in many countries and vague corporate expectations looking forward.

"There are in fact some macroeconomic signs fuelling hope for the Austrian stock market," said Helmut Bernkopf, the member of Bank Austria’s Management Board responsible for Corporate & Investment Banking, "exports picked up again in summer and corporate investment activities are also increasing." At the same time, inflation, which is expected to average 2 percent in 2011, should remain moderate due to lower pressure from raw material prices and despite the impacts of the budget consolidation. Not even excess global capacities and the troubled labour market will have any impact on the low inflationary situation. Bank Austria has therefore recently revised its forecast for economic growth in 2010 upward to 1.9 percent, with GDP next year expected to rise by 2.0 percent. "However, GDP growth alone is not automatically a reason for rejoicing, as the spectre of a double-dip recession has still not been laid to rest," said Bernkopf.

European stock markets are characterised by low price-to-earnings ratios, strong profit growth and attractive dividend yields. The Vienna Stock Exchange appears to be slightly higher priced compared to others, but it is also showing stronger than expected growth momentum. Generally speaking, the stock market is more attractively priced than the bond market. Solid corporate profits, moderately priced shares and an expansive monetary policy are currently having a supporting effect, noted Thomas Neuhold, Head of Equity Research Austria.  "On the other hand, falling early indicators, structural problems in a number of EU states and the potential risks of the European currency union are unsettling investors." Japan is the best example of how shares can be both cheap and volatile where there are high risks and grave structural problems.

3,000 Points as the 12-Month Target for the Leading Index on the Vienna Stock Exchange
In recent quarters the ATX has exhibited a broad sideways movement and is currently listed in the upper third of its range. Down 46 percent from its all-time high in 2007, the leading index on the Vienna Stock Exchange is also far from its pre-crisis level.  Its constituent sectors and strong exposure in Central and Eastern Europe mean that the Vienna Stock Exchange is a relatively volatile market. Nevertheless, in 2010 the ATX was among the few European stock markets to have revisions of earnings growth clearly in the black. UniCredit Equity Research Austria expects profit growth of 20.2 percent at ATX companies in 2011, followed by 15.3 percent in 2012. While this profit growth might seem aggressive, the forecast profits for 2012 will still be 9 percent below earnings in 2007.

Against this backdrop, UniCredit Equity Research Austria recommends AT&S, Erste Bank, Immofinanz, Post, Strabag and voestalpine. "In view of the high level of volatility on the market, we recommend that investors cherry pick to balance their share portfolios. Classic strategies such as buy-and-hold are not currently yielding attractive returns," Neuhold said. In twelve months, the ATX should stand at approximately 3,000 points with upward potential of some 12 percent.

Enquiries: Bank Austria Press Office Austria
Tiemon Kiesenhofer, Tel. +43 (0) 50505 - 52819
E-mail: tiemon.kiesenhofer@unicreditgroup.at

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