The ATX performance of +11% (+13% including dividends) in 2015 is quite conciliatory following a negative result for the year 2014: the Austrian equity market index beat the Eurostoxx 50, the leading euro zone index, by 5% (8% incl. dividends).

Nevertheless, the ATX suffered a major blow – as did its international counterparts – at the beginning of the year. Mounting tension between Iran and Saudi Arabia, surprisingly weak economic indicators in China and the impact of local trade restrictions in the aftermath of a renewed slump in commodity and energy prices sent many equity market indices the world over into a tailspin.

On a positive note, low commodity prices exert a positive influence on the economic momentum in our region. For example, real GDP in the euro zone expanded by 0.4% qoq on average in each of the first three quarters last year. Private consumption was a major pillar of economic growth. The current confluence of low commodity prices, strong USD and low interest rates turns out to be a growth driver for many companies. That notwithstanding, most companies are still far from euphoria due to economic jitters in several emerging markets. Many CEE countries apart from oil-dependent Russia are noble exceptions in this respect and rather have a stabilising effect (e.g. the Czech Republic and Slovakia as well as Romania and Hungary again) – as long as they are not subject to political/regulatory uncertainties (e.g. Poland).

As a consequence, corporate results of Austrian companies managed to beat market expectations also in 3Q – in contrast to the European average. The cautious outlook is reflected in revisions of earnings estimates for the following year, though – as in previous years. Companies with a bias towards commodities will likely have to put up with additional impairments and undertake restructuring measures in response to the current price level. As regards other industrial companies, we expect a solid reporting season.

Austria's economy has gradually picked up momentum in the past few quarters as well. This trend is largely anticipated to continue in 2016, underpinned to some extent also by the tax reform, which is coming into force. Unfortunately, there is a lack of classic consumer names on the Vienna Stock Exchange. That notwithstanding, there still are companies that benefit from positive income effects in Austria, e.g. in the residential real estate, retail banking, postal services and packaging segments.

Due to the continuing expansionary monetary policy from the ECB the low interest rate environment will persist also in 2016. Therefore, companies with high dividend yields appear particularly interesting at the beginning of the year. Also, the rising interest rate spread between the euro zone and the USA is likely to lead to sustained USD strength and should benefit exporters also in future. A low interest rate environment facilitates acquisitions, so that we also expect increased M&A activity (e.g. in the real estate sector) in 2016.

The companies of the ATX currently show a P/E ratio of 12, which is in line with the long-term average. The index valuation is still favourable against the backdrop of the low interest rate level and the ratio of dividend yield vs. bond yield. However, additional earnings revisions of some index heavyweights may be on the cards because of low commodity prices (above all oil) and weaker emerging-market currencies (e.g. the Russian rouble).

Stefan Maxian
Vice President of ÖVFA
Head of Department Company Research
Raiffeisen Centrobank AG
13 January 2016


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