The Austrian equity index has lost roughly 7% of its value since the beginning of the year. The ATX is in good company with this performance, as the DAX (-7%) and the SMI (-6%) have also been unable to entirely recover from their annual lows in January thus far. These corrections were triggered by the developments in China. The hefty losses on the Chinese equity markets at the beginning of the year had negative implications for nearly all of the equity indices around the world, and although the recovery process has started in the meantime, investors are still cautious.
For years, Austrian companies enjoyed exceptional profits thanks to their foresight in investing in Central and Eastern Europe after the fall of the so-called Iron Curtain. Following the financial market crisis, however, the situation turned: Austrian companies were confronted with significant challenges due to the Ukraine crisis, the sanctions against Russia, an unpredictable economic policy in Hungary, and the banking crisis in Bulgaria. Virtually every sector was impacted – from banks and insurance companies to energy companies and telecom providers. Although some of these factors are still having a negative effect on the development of business for individual companies, a few Eastern European countries such as the Czech Republic, Poland, and Romania are showing very strong economic data. Austrian companies that are invested in these countries may benefit from these developments, and the situation could turn once again.
Added to this is the fact that the ATX is very undervalued. The book value is just over 1, while the DAX shows a figure of 1.6. This low book value does not at all reflect the actual value of the companies listed in the index. Reasons for the low valuation probably still include the negative ramifications of the Ukraine/Russia crisis described above. In any case, it certainly is not based on the earnings development of the listed companies, because the earnings season was quite positive on the whole. All of these factors could once again attract more attention from international investors for the Austrian equity market.
In these challenging conditions, actively managed funds are able to show their strengths compared to simple index-tracking investments. Because being able to exclude certain names is equally as important as being able to selectively pick others when it comes to making a successful investment. The fund management of Raiffeisen-Österreich-Aktien is currently strongly focused on real estate companies, as these firms are trading below book value compared with their European peers. The portfolio also includes companies that are not even listed in the ATX, such as Do&Co. The fund is generally very active when it comes to such second-line equities, and this applies not only to Do&Co but also to companies such as Strabag. An important performance driver for Raiffeisen-Österreich-Aktien this year has been Lenzing AG. In its corporate strategy, the new management of the fibre manufacturer is focusing on the proprietary brand Tencel®, a lyocell fibre for which the company is the world’s leading producer. The company’s share value has increased by 17% since the beginning of the year.
Author:
Ingrid Szeiler
Chief Investment Officer
Raiffeisen KAG
3 June 2015
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.