International equity markets delivered high returns with very low volatility for quite some time. Since the market low on March 9, 2009 the MSCI World Index returned more than 180% in EUR terms – more than 20% per year. The low interest rate environment supported the hunt for yield, investors came back to equity markets step by step. Price-Earnings-Ratios returned from very low levels to the historical mean and above. Today the vast majority of international stock market indices are slightly overvalued – be it on trailing or forward Price/Earnings. The same is true for Price/Book and similar valuation measures.

History shows that in the late stage of a bull market cycle prices can go much higher than can be explained by fundamentals. Today's consensus market outlook is supportive for risky assets. Ultra low interest rates around the world will continue to favor equities. Inflation is under control and the global growth outlook is at least ok.

Be aware that with so much complacency in the market investors tend to make mistakes like chasing performance, taking higher risk and overseeing warning signs. One of those underestimated warning signs was seen in China in the last weeks: While all eyes have been fixed on Greece, the value of the Chinese domestic equity market has plunged by more than 30%. This means nearly USD 3,2 trillion in market cap or more than a quarter of Chinas GDP or more than 10 times that of Greece. When you see more events like this it’s time to reduce risk and invest into protection.

Austrian stocks in that context

The Austrian stock index offers high relative attractiveness within the equity part of a portfolio. With a much weaker performance in the past years, a P/E of only 12,6 and a P/B still below 1 the ATX is among the cheapest markets in the developed world. It could be a good time to take profits in European Indices that have a relative high valuation and add to ATX positions. The index has not reached the late stage of the bull cycle yet. Therefore the potential to close the gap and outperform in the coming quarters is obvious.

Erika Karitnig
Head of Equities & Multi Assets
23 July 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.