- Austria overcomes economic drought
- Multi-speed recovery in CEE: Central Europe takes over growth leadership
- US: Fed starts normalization of fiscal politics
- Global equity markets: risk-return profile continues to be more attractive compared to many fixed income alternatives
- ATX target: 2,800 points by year-end 2014
- Favourites for Austria and CEE: Mayr-Melnhof, Uniqa, Immofinanz, Alior Bank, Ciech and CTC-Media
"In Europe, but also globally, 2014 is marked by growth recovery. For the Eurozone, the new year will not only bring a multitude of new regulations under Basel III but with Latvia also a new member state. The global markets will see an end of the excess liquidity due to the withdrawal of the American bond-purchase program. In the first quarter, the Emerging Markets outside of Europe will by trend stay behind the established markets. However, there will be a differentiated development as reform-orientated countries will continue to show higher performance yields," Peter Brezinschek, Head of Raiffeisen Research of Raiffeisen Bank International AG (RBI), starts his presentation of the two publications "Global Markets Strategy" and "Central & Eastern European Strategy" for Q1 2014.
"Over the next twelve months, we do not see any noteworthy growth improvements in the BRIC countries due to beginning structural changes. We expect the high point of the global growth dynamic for the beginning of 2015. Hence, the GDP forecasts for this year should be above the potential growth. It is also noticeable that the growth differences within the Eurozone will decline," continues Brezinschek.
Austria overcomes economic drought
During H2 2012 and H1 2013 the Austrian economy was essentially treading water. This was followed by a tentative recovery in economic activity in Q3 2013. For the first time since the beginning of 2012, gross fixed capital formation as well as private and public consumption made stronger contributions to GDP growth (qoq) than external trade, which had previously been the main pillar supporting growth. The trend of an upturn in domestic demand in conjunction with declining dependence on external trade should continue to characterize business cycle dynamics in the quarters ahead.
"For the coming quarters we expect a continuing recovery of the growth dynamic. The high point in the business cycle should be reached in the winter half year 2014/2015. For 2014, we thus project growth to accelerate to 1.5 per cent, up from the estimated increase of 0.3 per cent in 2013, and followed by 2.3 per cent in 2015," sees Brezinschek the growth estimates for Austria quite positive.
Multi-speed recovery in CEE1 : Central Europe takes over growth leadership
Compared to recent years, the economic situation has changed significantly. Whereas the CIS region had shown the strongest growth figures since the last upturn, since the summer of 2013 the momentum in economic growth has been increasingly shifting to Central Europe (CE). Especially Poland, Czech Republic and Slovakia take on a leading role in the region. "While we expect in CE for 2014 a growth of about 2.3 per cent, the growth estimates for the CIS region remain rather restrained. Especially Russia with only 1.7 per cent and Ukraine with zero GDP growth stayed behind the expectations. We see the main reason in the lacking modernization of the oil and gas business. But also the promotion of the production of high quality consumption goods and redirection of capital outflows into domestic gross fixed-investments are still insufficient," analyses Brezinschek the reasons for the weak growth in the CIS region.
He sees two main factors responsible for the CE growth leadership: "CE profits from the strong economic ties to Germany, which is the powerhouse of the Eurozone. Furthermore, these countries have made their industries more competitive versus imports due to their low unit labour costs."
USA: Fed starts normalization of fiscal policies
After speculations in May and again a cancellation in September the decision to withdraw from the US bond purchasing program is now definitely made. The Federal Reserve plans a gradual limitation of the US bond purchasing program that will be completed in Q4 2014. However, for 2014 a balance sheet expansion of USD 450 billion, which equals 3 per cent of the GDP, is planned.
"We still have serious doubt about the Fed's road map for the normalization of its fiscal policies. The reason for it is the economic growth in 2014 that will be considerably better than in the previous year. The unemployment rate is likely to further decline and as a result the wages should increase. The previously defined threshold of the unemployment rate of 6.5 per cent is already expected for Q4 2014. Although the Fed signalizes an interest rate increase not until H2 2015, we expect a first interest rate hike already in the beginning of 2015," sees Brezinschek the recent statements of the Fed skeptical.
Global equity markets: risk-return profile continues to be more attractive compared to many fixed income alternatives
Long-term government bond yields in the US and the Eurozone are likely to increase over the year due to the accelerating economic growth. With the exception of Russia and Turkey, yields on CEE government bonds are relatively low. As yields rise in the Eurozone during the course of 2014, the analysts expect a parallel development for CEE government bonds, with an increase of around 50 to 70 basis points compared to year-end 2013.
In light of the often low or negative real performance prospects of safe fixed-interest investment alternatives, the risk-return relationship for global equities appears balanced, even more against the backdrop of our assumption of a rebound in global economic output and the outlook for a mild acceleration of earnings growth for 2014 as a whole. The exhaustion of the earnings cycle is limiting the stock price potential in the US. A buy recommendation can be given for European equities. In Europe, the continuing stabilizing growth, the prospect of rising yields and spreads, moderate evaluations and the lack of high profitable investment alternatives have positive effects.
In the CEE region the analysts of Raiffeisen Research generally see catch-up potential for stock market indexes. However, the performance forecasts for 2014 are quite different with a range between 6 and 13 per cent. "In Poland the expected profit increase for 2014 is at moderate 2.5 per cent. The assessment of the P/E ratio for 2014 at 13.0 is historically seen moderate and slightly above the Western European level. Furthermore, after the Polish government provided more details on the pension reform, private pension funds may switch over to being net sellers of Polish stocks more quickly than anticipated," explains Brezinschek the under-weighting of the Polish stock index.
"With a performance of plus 26 per cent, the Romanian BET was clearly the top performer of 2013. Political and economic conditions offer a good foundation for an above average performance of the Bucharest stock exchange. The government is doing its homework and maintaining budgetary discipline. Fundamentally speaking, the valuation of Romanian stocks still looks attractive, despite the rises. On an index basis, the P/E ratio for 2014 is 6.5," continues Brezinschek.
ATX target: 2,800 points by year-end 2014
The perceptible improvement of macroeconomic data should be the main driver of equity markets in the year 2014. Also the continuing low interest rates lend support to equities as an asset class. Stefan Maxian, Chief Analyst of Raiffeisen Centrobank (RCB) explains, "In this market environment we forecast the ATX to climb to 2,800 points by year-end." Although the share price-performance of the Austrian equity market (ATX plus 6 per cent) and of several indices in Eastern Europe (e.g. WIG 20 minus 7 per cent, BUX plus 2 per cent) trailed behind the development of Western European markets (e.g. EuroStoxx plus18 per cent) in 2013, a further easing of risk aversion and better market conditions make investments in equities of the region more attractive, according to the analysts of RCB. The ATX currently displays a P/E ratio 2014 of 11.9.
Favourites for Austria and CEE: Mayr-Melnhof, Uniqa, Immofinanz, Alior Bank, Ciech and CTC-Media
RCB's Chief Analyst considers Mayr-Melnhof, Uniqa und Immofinanz as favourites on the domestic equity market. For Maxian, "Mayr-Melnhof is traded at substantial valuation discounts compared to the peer group which we feel are a bit exaggerated. In addition, we believe that the recent acquisitions are positive for the group and we anticipate an EBIT increase of some 10 per cent p.a. in 2014 and 2015". As regards Uniqa, RCB particularly points out the expected earnings momentum resulting from the restructuring program Uniqa 2.0. The group's pre-tax profit is anticipated to grow from EUR 205 million to EUR 503 million between 2012 and 2015, fuelled by two main forces: cost-cutting measures on the one hand and intensified use of the Raiffeisen network's distribution channel in Austria and CEE as well as a general catching-up process in terms of insurance penetration in the CEE countries on the other hand. As the year 2014 progresses, the Immofinanz share is expected to continue to benefit from the planned spin-off of the residential segment (BUWOG) from the commercial property portfolio. Moreover, the presence in Moscow has a very positive effect on the business development because it reaps high rental yields.
In Poland, the analysts of RCB count on Alior Bank and chemicals company Ciech in 2014. Following a successful capital increase, the valuation of Alior Bank is considered attractive. In addition to that, robust loan growth and a tangible increase of the net interest margin can be expected. As for Ciech, the company's focus on inorganic chemicals (soda as well as silicates and glass), which are not related to oil derivatives, means that it is less exposed to the recent unfavourable trends on the European market. Furthermore, price hikes can be expected in the soda segment, and soda sales volumes are bound to increase on the back of capacity expansion measures in Poland. Russian media group CTC Media somewhat missed out on the rally of media stocks in the summer of 2013, so that it is poised for an outperformance further on. The main positive triggers could be better audience dynamics and increasing exposure to Internet advertising. The dividend yield of more than 5 per cent is an additional bonus by sector standards.
1Central and Eastern Europe (CEE) is composed of the regions of Central Europe (CE) with the Czech Republic, Poland, Slovakia, Slovenia and Hungary, Southeastern Europe (SEE) is composed of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Romania and Serbia and the Commonwealth of Independent States (CIS) with Russia, Ukraine and Belarus.
This press release contains recommendations in the context of § 48f of the Austrian Stock Exchange Act (BörseG). Disclaimer and Disclosures, see https://www.rcb.at/en/news-info/securities-prospectus/
Raiffeisen Bank International AG (RBI) regards both Austria, where it is a leading corporate and investment bank, and Central and Eastern Europe (CEE) as its home market. 15 markets of the region are covered by subsidiary banks, additionally the Group comprises numerous other financial service providers, for instance in the fields of leasing, asset management and mergers and acquisitions.
RBI is the only Austrian bank with a presence in both the world's financial centres and in Asia, the group's further geographical area of focus. In total, around 59,000 employees service about 14.4 million customers through more than 3,000 business outlets, the great majority of which are located in CEE. RBI is a fully consolidated subsidiary of Raiffeisen Zentralbank Österreich AG (RZB).
RZB indirectly holds around 78.5 per cent of the shares; the rest account for the free float. RBI shares are listed on the Vienna Stock Exchange. RZB is the lead institute of the Raiffeisen Banking Group in Austria, the largest banking group in the country and group head office for the entire RZB Group, including RBI.
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Raiffeisen Centrobank AG, the equity company of Raiffeisen Bank International, is a leading Austrian investment bank with a strong focus on the CEE region. It offers the entire range of services and products having to do with stock, derivatives and equity transactions in and around the stock market. On the basis of this position, the investment bank also offers exclusive individual Private Banking services.
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