Even with decades of experience, you finally held your breath. In a matter of weeks, the bond market has priced a new world, unsurprising in direction but historic in every respect. Persistent inflation due to geopolitics and shortages of goods and labor and central bank-actions led to massive increases in bond yields across all maturities and market segments. For example, the fear of further rising interest rates led to EURO investment grade corporate bonds again bringing yields that we last saw in 2012. Thus, a decade of low interest rates was wiped out in just a few weeks. The current levels are notable as the balance sheets of banks specifically and corporates in general are in better shape than they were in 2012 amid the EURO worries.
At the same time, fears of a recession are raging on the stock market, earnings expectations are falling, P/E ratios based on expected earnings have recently fallen significantly. Many so-called digitization winners have seen massive price slumps and are sometimes below the levels before Corona, which is also remarkable.
Fear everywhere you look, but doesn't one fear have to be too much? Is it really realistic that the economy goes into recession and that doesn't change the inflation issue and supply chain problems? Current market expectation is that the US Federal Reserve Rate will be around 3.50% in 12 months. Some of the shares are in a bear market, and all leading economic indicators are cooling down rapidly. Will it really take that many rate hikes to cool down the economy?
On the stock market in Vienna, the complexity of the geopolitics adds another fear: dependence on Russian gas. As an asset-manager, you can't predict the future either, especially not that of geopolitics. You can only evaluate the current situation. Many companies show excellent management quality and have convincing multi-year plans: AT+S, Mayr-Melnhof, Lenzing, Andritz, Wienerberger or Pierer Mobility are just a few examples. The bank and insurance stocks, which are heavily weighted in the index, will also benefit from the turnaround in interest rates in the medium term.
However, only the "bad news" is currently included in the rating. The price-earnings ratio based on the expected corporate profits for the next 12 months is currently only 8 and thus well below the European and global average.
The tactician knows that the stock prices of today and tomorrow are written purely by the global news situation. However, the strategist knows that in the coming quarters and years the prices will be driven by business models and the quality of the companies. The strategist is therefore currently finding attractive entry-levels and is not succumbing to the illusion of perfect timing anyway.
Alois Wögerbauer, CIIA
Executive of 3 Banken-Generali Investment-Gesellschaft m.b.H.
27 June 2022
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.