Outlook for the stock market for the second quarter of 2011:
No pain, no gain
- Austria has largely been spared the slowdown in profit growth observed in several other equity markets and is benefiting from the stable economic situation.
- Forecast of the UniCredit analysts: ATX should hit 3200 points over the next twelve months with a total potential return of 15 percent, dividends included.
- Change in index composition leads to substantial upward revision in expected profit growth of 41 per cent for 2011 and 20 per cent for 2012.
- Current portfolio continues to rely on bank and real estate stocks as well as defensive and late-cycle stocks.
Several factors coincided to cause a slowdown in the European equity market in the first quarter of 2011. The largely positive trend in profits has been subdued by negative cyclical factors as well as structural problems in several countries and external events such as the catastrophe in Japan. The Austrian equity index also got off to a restrained start in the first quarter with a loss of minus one per cent. Nonetheless, the experts from UniCredit remain optimistic about a positive trend in the next nine to twelve months. Austria is therefore benefiting from its stable key macroeconomic figures and the domestic equity market is still attractive for investors. Austria's extensive interconnections with Germany and Eastern Europe are also beneficial to the country as a financial centre. The forecast target for the ATX for the next twelve months has been raised slightly by UniCredit analysts to an ATX of 3200 points and a total potential return of 15 per cent.
Thomas Neuhold, Head of Equity Research for Austria at UniCredit: "The positive economic data and economic stability should make Austria one of the preferred equity markets this year. In addition, domestic stocks benefit from the high affinity of the ATX with Germany and Eastern Europe. The ATX is currently on the rise. The road can be a bit bumpy at times as it was in the first quarter but ‘no pain, no gain', as the saying goes, and the ATX has been rising steadily since its sudden downward plunge in 2007." Neuhold continued: "Being in the Vienna ATX for the long haul will pay off, because we still see upward potential."
Profit growth has lost some of its dynamism in the international equity market and the upward trend in profits has weakened in several stock markets. Negative profit trends are emerging in particular in countries with structural problems such as Spain and Greece. At the same time, the DAX, among other indices, is developing quite well. The growth rates within the euro area are increasingly divergent. Neuhold's analysis: "Germany and Eastern Europe are currently the engines of growth in Europe. Fortunately, these regions are also the main export markets or domestic markets for many Austrian companies. Austrian companies have several growth engines under their bonnets due to the strong forecasts for growth for Germany and Eastern Europe." Given the plunge in leading indicators, however, upward adjustments in profit figures are increasingly improbable. Sharp further rises in prices are therefore possible only where valuations increase markedly.
The ATX continues is steady upward rise - 3200 points as a 12-month goal
According to their latest forecasts, UniCredit analysts predict the ATX will hit 3200 points within the next twelve months. That means the leading Austrian index is still 35 per cent below its peak levels of 2007. The index is continuing its constant rise upward and in 2010, was one of the few European equity markets that saw a big upward revision in profit growth forecasts. UniCredit experts in equity research estimate that profit growth will be 41 per cent for 2011 and 20 per cent for 2012. The rate of profit revisions continues to be virtually nil and further positive profit revisions are quite improbable, also in Austria. Given this environment, the equity research team at UniCredit sees great potential for AT&S, Erste Bank, Immofinanz, Post, Strabag and Wienerberger. Neuhold's closing thoughts: "Our current focus is on stocks that will see high profit growth, especially bank and real estate instruments. Defensive and late-cycle stocks are what we recommend to investors, so they can be prepared for any situation."
Enquiries: Bank Austria Press Office for Austria
Julia Wegenstein, Tel: +43 (0) 50505 – 52854
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