The CEE equity markets made a good start into the year 2015 but showed quite diverse trends: whereas the CE equity market indices of Hungary and the Czech Republic started off on a very positive note and a recovery rally took hold on the Russian equity market, the index performance of the SEE region and Turkey was much more subdued.

The Hungarian equity market was the top performer of the region with an index increase of 25%. This stellar growth was above all fuelled by the 40% share price jump of Hungary's OTP Bank. The re-rating of the share was brought about by a broad-based joint initiative by the government and the central bank to improve the efficiency of the Hungarian banking system, with a significant reduction of the banking tax and a new funding scheme to foster the growth of SMEs as key elements. In addition, the macroeconomic environment appears quite solid with expected GDP growth of 2.5% for 2015 and an upgrade of the country rating largely being anticipated.

Following the outstanding performance in the months of January and February, Russia's leading index MICEX paused for breath in March. This was attributable to the stabilisation of the oil price on the one hand and the Minsk II Agreement on the other hand. Even though it is a fundamentally positive development that the Minsk II Agreement was reached, implementation looks to be a difficult task. Its successful realisation likely also hinges on the question whether and to what extent the EU sanctions against Russia will be extended or eased.

The Polish WIG 30 index has returned a moderate 4.5% ytd, clearly lagging behind its local peers - Hungary and the Czech Republic. However, this is hardly due to economic conditions, which hold up fairly well with projected GDP growth of 3.5% for 2015. The index performance was rather weighed down by the following factors: a) measures taken to bring about a solution to the CHF mortgage loan saga which came partly at the expense of credit institutions (with Hungary being the worst-case scenario for banks), b) more pronounced interest rate cuts than expected and the resulting negative impact on banks' interest margins and c) government plans to reorganise loss-making coal mines that might also involve listed utilities. In this connection, investor sentiment has deteriorated on fears of election gifts ahead of the parliamentary elections in autumn. Moreover, the consequences of last year’s pension reform might still have contributed to the underperformance.

Our strategy recommendation for 2Q is to overweight dividend stocks in the run-up to the beginning dividend season. In our opinion, companies with a consistent dividend policy and an above-average dividend yield should be able to recover their ex-dividend markdowns relatively fast in view of the loose monetary policy of the ECB (quantitative easing) and low corporate bond yields. Against this background, the Czech equity market appears particularly interesting. We also believe that the Polish equity market stands a good chance to recover the current underperformance and gain positive momentum until year-end, driven by the dynamic macroeconomic environment. Also in Hungary, current discussions about a further reduction of corporate taxes and positive effects from the ongoing recovery of the rouble on several companies with exposure to Russia could fuel a continuing positive market development.

Stefan Maxian
Head of Department Company Research
Raiffeisen Centrobank AG
10 April 2015


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.