What are the key drivers for the development of the Vienna Stock Exchange? How is the economy going in Western Europe, how is the economy going in Eastern Europe and what is the situation in Austria? We currently have the rare situation that the question for all three areas can be answered as "good". Austria's growth will reach almost 3% in 2018 according to the latest estimates. Many Eastern European countries grow at rates close to 4%. Western Europe will grow by more than 2%, even though sentiment indicators have deteriorated, especially in Germany.
The growth of domestic corporate profits in 2018 will be in the high single-digit range. This applies to a market with a P/E of only 12 on average and a dividend yield of 3.2% on average. A strong argument in an environment where best-credit corporate bonds can barely make a 1% return. This fundamentally lays the foundation for a positive stock market environment. Long-time experienced stockbrokers, however, know that fundamentals cannot always be converted into price.
Austria is not an island and so the international conditions have to be observed. A US president who makes unpredictability a quality feature and interprets the tariff dispute as a game of poker also risks economically negative overall developments. Like no other stock exchange, Vienna is characterized by cyclical companies: banks, real estate and above all a lot of exposure to the cyclical industrial sector. Defensive stocks from non-cyclical sectors are scarce. The state of the world economy is therefore important. Then there is a government in Italy with plans that, if implemented, would lead to a significant expansion of debt. And above all, we also see a gradual normalization of the central bank's activities, so the liquidity glut of recent years is not repeatable. Liquidity is a key driver for the development of global equity markets.
For investors that are acting both in the short term and on a tactical level, this is a difficult environment. But for such investors the Vienna Stock Exchange was and is still not the right market place to invest. A positive price development over the coming summer months is unlikely. But the long-term perspectives are convincing.
For investors thinking strategically, however, this opens up a variety of attractive opportunities - patience and vision provided. The consolidation of the domestic real estate equity landscape is still ongoing. CA Immo, Immofinanz and S-Immo still have potential. With Vienna Insurance Group, you can buy the market leader in Eastern Europe. Strabag will benefit from Germany's investments in road infrastructure. Lenzing will continue to invest and increase the proportion of specialty fibers. Vienna Airport benefits from the city's fundamental growth and numerous new low-cost airlines.
The Vienna Stock Exchange is therefore worth more than a glance. Too many investors still remember the peak of 2007 in their heads – and overlook the fact that the Viennese market has developed excellently in the last five years – also in international comparison.
Alois Wögerbauer, CIIA
Executive of 3 Banken-Generali Investment-Gesellschaft m.b.H.
3 July 2018
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.