If I had written this commentary in summer 2010 there would have been two fundamental options for the interested investor. An investment in 10-years Austrian government bonds would have generated a yield of about 3%. Compared to that an investment in the Austrian stock market as measured by the ATX-Index also had a dividend yield of about 3% on average. Especially in Austria the majority of investors would have opted for the bond version even if I had focused on stocks.
Nowadays, 9 years later, the situation is completely different. As for bonds June 2019 was a historic occurrence. First time in history the 10-year Austrian government bonds had a yield below zero. The 100-year Austrian government bonds currently have a yield of about 1.15%. This situation of low interest rates is not a temporary phenomenon. This situation is expected to stay for long. Comparisons with the historic development in Japan are not to be ruled out.
How is the stock-market valuation in this environment? Based on the expectations for the dividends for the upcoming year the dividend yield for the ATX-index is at impressing 4.1% on average. Obviously not every dividend is safe in every economic environment. Whereas, overall quality of dividends is high, balance sheets are stable and the dividends are in a reasonable ratio to the profits of the companies. These 4.1% are not a fancy figure, but represent a realistic expectation.
Also from the angle of valuation we see an attractive basic situation. Based on the current profit expectation for the upcoming year we see a price-earnings-ratio of about 11. This is below the European as well as below the global average. You have to consider that there are many cyclical companies in Vienna, whose valuation is not comparable with growth companies. Nevertheless this a favorable starting position.
The shift towards a dividend market will go on – and will be honored by the investors sooner or later. Many companies like Austrian Post, Mayr-Melnhof or the insurance companies Vienna Insurance Group and Uniqa don't convince with high growth but with sustainable dividends. After a phase of portfolio reorganization OMV will focus more and more towards cash flow and dividend. voestalpine and Andritz are offering a solid buying opportunity due to the currently low valuation. Furthermore there is the property market with Immofinanz, CA-Immo and S-Immo, which is facing reorganization and in principle is the biggest profiteer of the EZB interest policy.
The Vienna Stock Market is no place for traders and momentum-players: Firstly because of the complicated market timing, secondly the poor liquidity does not allow trading strategies. The Vienna Market is a place for strategists who should have a value-bias.
An investor with a steady hand, a high tolerance for volatility and an investment horizon of several years currently finds an excellent basic situation in Vienna.
Alois Wögerbauer, CIIA
Executive of 3 Banken-Generali Investment-Gesellschaft m.b.H.
3 July 2019
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.