The Vienna Stock Exchange was in the lower part of the international performance list in 2020 and will now appear again in the upper part in 2021. This effect of "particularly good" and "particularly bad" is not new and is also not atypical for cyclical smaller markets. What is the reason for the reassessment of Austrian companies? It is always important to understand the reasons for developments. There is no reassessment of the country. In a globalized world there are hardly any investors who set a country weighting in the form of a top-down approach, especially not within the euro area. Rather, it is about sectors and industries. Many developments are very dependent on international capital flows, Vienna is particularly dependent.
The most powerful international trend in recent years has been the division into growth and value. The growth segment showed massive outperformance supported by the digitization champions coming from the USA. The value segment, shaped by the industry, energy and finance sectors, lagged significantly behind. In November 2020, starting with the vaccination progress and the associated rising economic and rising inflation expectations, the wind turned. The value segment - and also the Vienna Stock Exchange - started a race to catch up. The correlation between the “World Index Value” and the ATX index is very high, it will stay that way and is based purely on the industry weighting.
The tailwind for Vienna should continue as the year progresses. From a top-down perspective by the fact that many international investors are still underweight in value strategies and that more capital should flow in. From a bottom-up perspective by the fact that the profit quality of domestic companies is remarkably good in the vast majority. This is the key issue that many over-skeptical investors are currently overlooking. In Austria in particular, the often exaggerated media view of gastronomy or tourism is distorting. The fact is that global economic growth for 2021 was last revised upwards to a respectable 6%. For the clear majority of companies listed in Vienna, this global view is much more important than a purely national economic figure.
Finally, the look at the interest side remains. The yields on 10-year Austrian government bonds have increased slightly in the year to date and are now hovering around the zero line. Even if this trend continued a little longer, we do not see a scenario for years to come in which the fixed-income sector could become a significant competitor for equity investments. As so often, the interest rate turnaround will not take place. This results in a very attractive equity risk premium compared to bonds, which is probably the most important valuation indicator. In addition, the dividend yield on Viennese shares averages over 3%.
In portfolio construction, the defensive consists of dividend stories such as Telekom Austria, VIG, Mayr-Melnhof or Post. The midfield consists of strategically excellent companies such as Erste, Wienerberger, Lenzing and Palfinger. And when it comes to attack, we rely entirely on AT&S. This still underrated regional star will be playing in a top international league within a few years.
Alois Wögerbauer, CIIA
Executive of 3 Banken-Generali Investment-Gesellschaft m.b.H.
30 June 2021
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.