The Vienna Stock Exchange, and its index the ATX, have come under enormous pressure as a result of the 2008 global financial crisis. Compared to other international benchmark indices, the ATX has clearly been underperforming since the start of 2008. It appears that international investors are equating CEE’s growth story with the same risks evident in today’s slumping stock markets. It is for this reason that markets with a lower capitalization are under greater pressure as a consequence of equity weightings in portfolios being slashed. Despite the revisions to earnings, which have already been carried out, valuations are extremely attractive. The downtrends are fully intact; should a phase of stabilization emerge, then a short-lived recovery seems possible even in 2008. Erste Bank analysts believe that there are basically two realistically feasible scenarios: the economy slipping into temporary or lasting recession, with the chances being 50:50.
International stock markets and the Vienna Stock Exchange: Downtrend fully intact Stock markets are generally at historically attractive levels, but there are also sharp revisions of earnings and sales revenues. Preference should be given to the markets in the euro zone over US markets, and the higher spread of 780 bps, which results from the earnings yield vs. yields on 10-year government bonds, also favours European stocks. Overall, Erste Group analysts expect a short-lived countermovement in 2008 should the currently extremely negative environment on the markets stabilize temporarily.
“Fundamentally, the much higher returns, i.e., earnings yields, indicate a preference for European equities, especially for Austrian stocks over 10-year government bonds,” says Fritz Mostbck, head of group research. “In Austria, this spread is an amazing 1300 basis points despite the earnings revisions already carried out. Unfortunately, no one is really interested in this right now. However, a time will come again when investors will remember the fundamentals.”
Vienna Stock Exchange absurdly inexpensive, CEE countries still growingThe historically inexpensive valuation of the ATX of around 5 (PE 08e and 09e) speaks for itself,” says says Fritz Mostbck. “More potential earnings revisions are already being negatively priced in now on the capital market. The current GDP forecast of Erste Group Research on the economic situation of the CEE8 countries still states 2.1-% growth for 2009, while the euro zone is shrinking at -0.4%. “On the whole, this means that although the economy will develop more weakly in CEE in 2009, it will still remain robust in comparison to the euro area average.”
D.C.