Raiffeisen takes the pulse of CEE region
“Compared to other core euro area countries, the economic sentiment developed weak in Austria. Consequently, economic growth will likely continue to be very subdued in the coming quarters. With the outlook for domestic demand remaining weak, real GDP growth rates will probably be similar to what was seen recently (plus 0.2 per cent q-o-q in the second quarter) until the first quarter of 2015. After that, it appears likely that dynamics will accelerate, borne by private consumption and investments, but growth will probably still remain more modest compared to previous upturns. This projected path results in expected GDP growth rates of 0.9 per cent in 2014, followed by 1.2 per cent and 1.9 per cent in 2015 and 2016 respectively,” starts Peter Brezinschek, Chief Analyst of Raiffeisen Research at Raiffeisen Bank International AG (RBI) his presentation of the “Central and Eastern European Strategy” for the fourth quarter of 2014.
CEE: mixed picture of robust growth in CE and recession in Russia and Ukraine
“In Central and Eastern Europe (CEE)1 we currently see a mixed picture. The GDP forecasts for 2014 in CE remain robust with 3.1 per cent for Poland, 2.6 per cent for the Czech Republic, 3.0 per cent for Hungary and 2.7 per cent for Slovakia. Our aggregate growth forecast for CE has not changed much and remains at around 3 per cent for 2014 and 2015,” explains Brezinschek.
The biggest downward revision was made in SEE, a disappointing second quarter for domestic investment demand in Romania forced the analysts to significantly cut their growth estimate for 2014 from 3.5 per cent to 2 per cent and also cut their estimate for next year. Croatia and Serbia continue to struggle, while Croatia might again not return into growth territory in 2015 – for the seventh consecutive year. With several key SEE countries facing less dynamism, the SEE growth estimate drops to 1.2 per cent this year and 2.2 per cent next year (from 2.0 per cent and 2.9 per cent). Brezinschek points out that for most CE/SEE countries the weaker-than-expected euro area recovery has a much bigger impact than deterioration in direct economic links with Russia.
“The prospects for Russia and Ukraine are still gloomy, and thus we have reduced our GDP forecasts for 2015 for these two countries again. Currently, we expect for Russia a negative growth of minus 0.3 per cent for 2014 and only 0.5 per cent growth in 2015. Russia is facing a long process of adjustment in conjunction with a declining tendency to consume. Ukraine must now attempt to reorganize its regional and economic structure. Here we expect a negative growth of minus 7 per cent for 2014 and minus 6.5 per cent in 2015,” ends Brezinschek the growth outlook for the CEE region.
Impact on the bond and FX-markets
The leeway opened up by the European Central Bank’s (ECB) ultra-expansive monetary policy and the delay in any rises in inflation have triggered further speculation about interest rate cuts in countries such as Poland and Romania. In 2015, the analysts of Raiffeisen Research expect there to be a long phase of bottoming out in key rates and money market rates.
Over the summer months, Czech and Polish local debt markets outperformed their regional peers. At the same time, Russia led in losses followed by Turkey, Hungary, and Romania. Brezinschek says that “Following the sharp sell-off in the third quarter, we anticipate recovery rallies towards the end of the year and favor short-term bonds in Turkey, Romania, and Russia. Backed by the solid fundamentals, we prefer longer tenors only for Polish and Romanian government bonds.”
The analysts expect a significant US dollar appreciation against the euro. Such an environment of pronounced euro weakness is usually not supportive for CEE currencies, with the exception of the Russian rouble, that is expected to rebound in the fourth quarter after the recent slump. At a one-year time horizon, the analysts see the best performance for Polish zloty against the euro.
ATX target: 2,380 points until year-end
The Vienna Stock Exchange’s ATX has fallen by an above-average 8 per cent in the third quarter to date, depressed not least by profit warnings on the part of index heavyweights and the negative impact of the crisis in Ukraine. By contrast, most stock market indices in CEE core countries have posted a positive quarterly performance. The ATX currently displays an adjusted expected PER of 17.8 for 2014 and 11.0 for 2015. The share price drops over the summer months were more pronounced than Raiffeisen Centrobank’s (RCB) analysts had expected, so that the market now prices in a fairly subdued scenario in terms of economic development, earnings trends and geopolitical risks. Stefan Maxian, Chief Analyst of RCB, explains that “based on our scenario of a stabilization of economic indicators as well as due to the monetary stimuli of ECB, that have recently been approved, the positive effects of the euro weakness on export-oriented companies and the assumption that geopolitical tensions will not further exacerbate, we expect a continuing slight recovery until year-end. Until year-end, the ATX should climb to 2,380 points and within a one-year horizon to 2,450 points.”
Industries in focus: industrials, financials, oil and gas
As regards individual industries, the analysts of RCB favor stocks from the industrial, financial and oil and gas sectors. In the industrial sector the RCB’s Company Research team counts on individual names that benefit from good order levels in non-European countries and from internal restructuring measures. In the coming weeks, the price performance of bank stocks will be determined by market participants’ expectations regarding the results of the Asset Quality Review (AQR), which are scheduled for the end of October. The analysts of RCB assume that sentiment towards bank stocks should improve again once the uncertainty in connection with the AQR and the stress test in October will have been overcome and banking supervision will have been taken over by the ECB. In anticipation of a rebounding oil price and given the appreciation of the US dollar the analysts of RCB also consider individual oil and gas companies interesting.
CEE: mixed picture of robust growth in CE and recession in Russia and Ukraine
“In Central and Eastern Europe (CEE)1 we currently see a mixed picture. The GDP forecasts for 2014 in CE remain robust with 3.1 per cent for Poland, 2.6 per cent for the Czech Republic, 3.0 per cent for Hungary and 2.7 per cent for Slovakia. Our aggregate growth forecast for CE has not changed much and remains at around 3 per cent for 2014 and 2015,” explains Brezinschek.
The biggest downward revision was made in SEE, a disappointing second quarter for domestic investment demand in Romania forced the analysts to significantly cut their growth estimate for 2014 from 3.5 per cent to 2 per cent and also cut their estimate for next year. Croatia and Serbia continue to struggle, while Croatia might again not return into growth territory in 2015 – for the seventh consecutive year. With several key SEE countries facing less dynamism, the SEE growth estimate drops to 1.2 per cent this year and 2.2 per cent next year (from 2.0 per cent and 2.9 per cent). Brezinschek points out that for most CE/SEE countries the weaker-than-expected euro area recovery has a much bigger impact than deterioration in direct economic links with Russia.
“The prospects for Russia and Ukraine are still gloomy, and thus we have reduced our GDP forecasts for 2015 for these two countries again. Currently, we expect for Russia a negative growth of minus 0.3 per cent for 2014 and only 0.5 per cent growth in 2015. Russia is facing a long process of adjustment in conjunction with a declining tendency to consume. Ukraine must now attempt to reorganize its regional and economic structure. Here we expect a negative growth of minus 7 per cent for 2014 and minus 6.5 per cent in 2015,” ends Brezinschek the growth outlook for the CEE region.
Impact on the bond and FX-markets
The leeway opened up by the European Central Bank’s (ECB) ultra-expansive monetary policy and the delay in any rises in inflation have triggered further speculation about interest rate cuts in countries such as Poland and Romania. In 2015, the analysts of Raiffeisen Research expect there to be a long phase of bottoming out in key rates and money market rates.
Over the summer months, Czech and Polish local debt markets outperformed their regional peers. At the same time, Russia led in losses followed by Turkey, Hungary, and Romania. Brezinschek says that “Following the sharp sell-off in the third quarter, we anticipate recovery rallies towards the end of the year and favor short-term bonds in Turkey, Romania, and Russia. Backed by the solid fundamentals, we prefer longer tenors only for Polish and Romanian government bonds.”
The analysts expect a significant US dollar appreciation against the euro. Such an environment of pronounced euro weakness is usually not supportive for CEE currencies, with the exception of the Russian rouble, that is expected to rebound in the fourth quarter after the recent slump. At a one-year time horizon, the analysts see the best performance for Polish zloty against the euro.
ATX target: 2,380 points until year-end
The Vienna Stock Exchange’s ATX has fallen by an above-average 8 per cent in the third quarter to date, depressed not least by profit warnings on the part of index heavyweights and the negative impact of the crisis in Ukraine. By contrast, most stock market indices in CEE core countries have posted a positive quarterly performance. The ATX currently displays an adjusted expected PER of 17.8 for 2014 and 11.0 for 2015. The share price drops over the summer months were more pronounced than Raiffeisen Centrobank’s (RCB) analysts had expected, so that the market now prices in a fairly subdued scenario in terms of economic development, earnings trends and geopolitical risks. Stefan Maxian, Chief Analyst of RCB, explains that “based on our scenario of a stabilization of economic indicators as well as due to the monetary stimuli of ECB, that have recently been approved, the positive effects of the euro weakness on export-oriented companies and the assumption that geopolitical tensions will not further exacerbate, we expect a continuing slight recovery until year-end. Until year-end, the ATX should climb to 2,380 points and within a one-year horizon to 2,450 points.”
Industries in focus: industrials, financials, oil and gas
As regards individual industries, the analysts of RCB favor stocks from the industrial, financial and oil and gas sectors. In the industrial sector the RCB’s Company Research team counts on individual names that benefit from good order levels in non-European countries and from internal restructuring measures. In the coming weeks, the price performance of bank stocks will be determined by market participants’ expectations regarding the results of the Asset Quality Review (AQR), which are scheduled for the end of October. The analysts of RCB assume that sentiment towards bank stocks should improve again once the uncertainty in connection with the AQR and the stress test in October will have been overcome and banking supervision will have been taken over by the ECB. In anticipation of a rebounding oil price and given the appreciation of the US dollar the analysts of RCB also consider individual oil and gas companies interesting.
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