Austrian equity market outlook for the fourth quarter of 2011:
ATX: We are approaching the lowest point – when will the turnaround occur?
- Vienna Stock Exchange in bear market: cyclical factors and external shocks lead to a 31 per cent decrease since the beginning of the year
- High level of short-term uncertainty: declining leading indicators, a slowdown in global economic growth and the debt crisis
- Positive long-term drivers: favourable valuations, macroeconomic stability in Austria and solid balance sheets for many Austrian listed companies
- UniCredit analysts remain optimistic: new ATX target of 2700 points for the next 12 months, but downside revision risk
- Top recommendations: conwert, IMMOFINANZ, Lenzing, Post, RHI and voestalpine
The Austrian equity market came under heavy selling pressure in the third quarter and has already lost 31 percentage points since the beginning of the year. In comparison to the most important European stock indices, this is the second worst result right behind the Greek equity market. The escalation of the debt crisis in the Eurozone and an increasingly cautious outlook for global growth prospects have led investors to get rid of Austrian equities. Following the latest revision of earnings estimates and target prices, the analysts at UniCredit still expect the ATX to hit 2700 points within
12 months with an overall yield potential of nearly 40 per cent.
Economic conditions have deteriorated in recent weeks. Economic concerns have grown considerably and growth risks, including in particular the further escalation of the debt problem in a number of industrial countries, have put even more of a damper on global sentiment among both consumers and manufacturers. The global economic slowdown also reached Austria in recent weeks and is now rapidly putting the brakes on the robust recovery of the Austrian economy seen in the first half of 2011. “Nevertheless, the Austrian economy will achieve one of the highest growth rates this year in comparison to the other European countries, at 3.3 per cent. The combination of a stable economic situation in Austria and the currently favourable valuation of Austrian equities is offering long-term investors good entry opportunities at the moment,” said Dieter Hengl, the Management Board member responsible for Corporate & Investment Banking at Bank Austria. “We are assuming that the market environment will become more stable once again next year. Due to the relatively poor growth prospects for 2012, at 1.4 per cent, inflation should settle at 2 per cent. We expect an upward trend in the general interest rate level and a stronger euro in the second half of 2012. These developments should also drive up the ATX,” said Dieter Hengl, commenting on the economic outlook for the coming year.
The current circumstances surrounding the European equity markets are more than challenging. The sovereign debt situation in the Eurozone, declining leading indicators and the slowdown in global economic growth have shaken the confidence of investors. Earnings growth has already entered negative territory on several European stock exchanges. Under these conditions, the ATX was unable to maintain its very positive development from the first half of the year and saw a dramatic drop. “The Austrian key index has experienced a drastic loss. We believe that this decline is definitely exaggerated and is a result of the general uncertainty on the market. On the positive side, some ATX stocks currently have favourable valuations and are attracting the interest of long-term investors. We can assume that the corporate earnings estimates will be revised downward in the coming months, but this already appears to be priced into the market for many stocks. Once economic conditions have settled again somewhat, we are convinced that the market will react positively and the bulls will return to Vienna,” said Thomas Neuhold, the head of equity research for Austria at UniCredit, analysing the current situation.
The current valuations are now just slightly higher than they were at the low point of the last crisis. Austrian companies are better equipped for another economic upswing than they were in 2009. “Industrial companies and real estate companies have both managed to markedly improve their net debt ratio since 2008/2009. As a result, we see a rather moderate balance sheet risk in comparison to the last economic decline. In addition, listed companies have become more flexible and have noticeably improved their working capital management and their operating flexibility,” said Neuhold, convinced of the stable situation among companies listed on the ATX.
Optimism remains – new 12-month ATX target of 2700 points
Due to the worsening economic environment, UniCredit analysts have revised their estimates downward somewhat. However, this is outweighed by optimism, and despite the negative earnings revision situation at the moment, further earnings growth is expected. UniCredit’s analysts anticipate that the ATX will rise to 2700 points within the next 12 months. The experts in equity research at UniCredit expect 17 per cent earnings growth in 2011, and 28 per cent in 2012. In light of the turbulent conditions, the equity research team at UniCredit believes that conwert, Immofinanz, Lenzing, Österreichische Post, RHI and voestalpine have the best opportunity/risk profile. “Stuck between attractive equity valuations on one hand and high uncertainty and increasing economic risks on the other, we recommend a defensive portfolio stance. We currently prefer equities with less cyclical business models, a solid balance sheet structure and high, sustainable dividend yields,” said Neuhold, summing up the situation.
Enquiries: Bank Austria Press Office Austria
Julia Wegenstein, tel. +43 (0) 50505 - 52854