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by Emmeran Eder, Euro am Sonntag
D.he tourists are flocking to Austria again. Many destinations are fully booked in summer. Since long-distance travel is hardly possible, German holidaymakers in particular travel to the neighboring country – to the delight of the local hotel and restaurant industry. It was particularly badly shaken in the Covid 19 crisis.
This was also felt by the Austrian economy. Tourism contributes 15 percent to the gross domestic product, around twice as much as in Germany. This was one of the main reasons why Austria had the weakest economic growth in Europe in the fourth quarter of 2020 after the renewed lockdown, at minus 4.3 percent.
However, there was another important cause. After the first lockdown in spring 2020 from July to the end of October, the Austrians took less restrictive action against Corona than other EU countries and then put the economic sectors on the brakes to a full stop.
What falls low, however, can also rise sharply again. The European Commission is therefore expecting a strong recovery of the Austrian economy this year by 3.5 percent and by 4.4 percent in 2022.
In addition to the rebounding travel sector, there are other reasons why the purchasing managers’ index rose from 54 percent in January to 66.4 in May, a long-term high. The Austrians saved a lot in the pandemic. They should have around 280 billion euros on the high edge. That should boost consumption. After the decline of 9.6 percent in the previous year, an increase of 2.4 percent is expected in private consumption this year.
The Austrian auto suppliers are benefiting from the rapid recovery of the auto industry in Germany, their most important trading partner. The same applies to the Austrian chemical industry, which also exports a lot to the neighboring country. This is contributing to the comeback of exports, which, after a slump of almost seven percent in 2020, are expected to climb by five percent this year.
The construction and real estate industries are also booming. Many hotels, for example, are redesigning their premises so that they can adapt to the changed wishes of customers in the Corona and post-Corona times, for example with wellness zones. The residential real estate sector is also booming, which is increasing the demand for new buildings.
The Austrian economy is also being boosted by Eastern Europe. Traditionally, the country’s economy is closely intertwined with Eastern Europe. Austria’s companies generate around a quarter of their sales with this region – especially with the Czech Republic, Slovakia, Hungary, Romania, Croatia and Slovenia.
Some of these countries were hit hard by the pandemic, but incidences have now fallen to low levels and their economies are recovering. “Austrian companies have been gaining market shares in the east for years”, praises Wolfgang Matejka, managing director of the Viennese property management company Matejka & Partner, the competitiveness and the good management of the companies. Not only industry, but also banks and insurance companies are very active there.
During the pandemic, however, this advantage briefly proved to be a disadvantage for Brisans. After the crash in February and March 2020, the Vienna leading index ATX did not gain momentum for a long time and lagged far behind the other European exchanges. Foreign investors, who dominate the ATX, saw the eastward orientation as a risk. In addition, they first invested in the major stock exchanges in Europe and left small, less liquid markets such as the Viennese by the wayside.
That changed suddenly when a vaccine was found and an end to the pandemic came in sight. Investors discovered the massively undervalued ATX and got involved. This is why the index has clearly outperformed the DAX since the beginning of the year.
Nevertheless, the ATX is still comparatively cheap. The price / earnings ratio for 2021 is 17, while it is 20 for the DAX. The gap in the price-to-book ratio is even clearer at 1.1 (ATX) to 1.8 (DAX). Matejka sees further potential. “Given the expected results, the valuations are realistic and not overly hopeful,” said the asset manager. Then there is the Eastern Fantasy. “The Vienna Stock Exchange is the gateway for investors who want to invest in Eastern Europe,” says Matejka.
Numerous hidden champions
The ability of medium-sized companies in the Alpine republic to innovate in niches is also frequently underestimated abroad. Like Germany, Austria has its hidden champions. One example of this is the Upper Austrian company Rosenbauer, which developed the first fire-fighting vehicle with an electric drive.
Domestic investors could be another driver for the leading Vienna index. The rise in the share price was mainly due to the Brsians from the USA and Europe, while the domestic shareholders were mostly on the sidelines and are still underinvested.
Perhaps also because they keep an eye on the political risks. Because in Vienna there has been a political scandal of the first order for several months. Federal Chancellor Sebastian Kurz is suspected of having given his confidante Thomas Schmid the post of head of the state holding company sterreichische Beteiligungs AG. Chat logs exist for this. In a chat, Kurz wrote to Schmid: “You get everything you want anyway” with three kissing emojis. Schmid replied enthusiastically: “I am so happy. I love my Chancellor.” In addition, the economic and corruption prosecutor’s office is investigating Kurz and his head of cabinet Bernhard Bonelli because of alleged false statements in the Ibiza investigation committee. The political posse could lead to the overthrow of the government and new elections. This uncertainty also weighs on the stock market.
Not everything is perfect
Another problem is the corporation tax, which is high by international standards. “Since the last reduction to 25 percent in 2005, the average corporate income tax in the EU has fallen to 21 percent. Austria has a competitive disadvantage in this regard,” criticizes Matthias Reith, an economics analyst at Raiffeisenbank Bank International.
He sees this as a given, even through the rampant jungle of authorities. “The radical clearing of bureaucratic hurdles and the shortening of legal channels would certainly save money in the amount of a substantial tax reform and would be an essential basis for major reform projects,” says Reith.
The greatest risk, however, is likely to be a violent fourth corona wave, which would once again lead to the closure of service and tourism businesses. If this does not happen, the ATX and selected Austrian stocks should continue to offer good opportunities and continue their upward trend.
Since the beginning of the year, the ATX has risen by 26 percent, significantly more than the DAX, at 14 percent. The main reason was catch-up effects. While the DAX recovered quickly after the crash in March 2020, the ATX gained only marginally up to autumn 2020. With the growing interest in value stocks, which are primarily represented in the ATX, this finally got going.
With the ETF from Xtrackers, investors track Austria’s leading index ATX with 20 blue chips identically. With a 30 percent share, banks have the highest weighting in the index, which is still favorably valued despite the rally. It is followed by raw materials (17 percent) before oil and gas (15 percent), utilities and real estate. The ATX is broadly diversified across many sectors, but tech stocks are in short supply.
With the acquisition of the Eastern European insurance business of the Dutch company Aegon, the Vienna Insurance Group has significantly expanded its market position in the east. In the opinion of many industry observers, the purchase was made at an affordable price. Since the competitive pressure in this region is not as high as in Austria or Western Europe, this should have a medium-term positive effect on the earnings of the Viennese insurance industry, which is currently valued more favorably than the industry average.
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