News

Current environment is supportive for equities

After a terrible start of the year, global equity markets continued their recovery during the third quarter. The surprising result of the Brexit referendum caused a short-term spike in volatility on equity markets, but the MSCI World index reached its level before the referendum in only three weeks and now is approximately 2.5% above the level from the beginning of the year. 

The PSE’s PX index added almost 6% in 3Q16. However, from the full-year perspective, the Prague bourse is still underperforming most major and regional equity markets with a nearly 10% YTD loss.

The biggest loser on the PSE so far this year is Vienna Insurance Group, as its shares have plummeted 31%. Erste Bank shares jumped more than 30% in 3Q16 but are still down 6.6% year-to-date.

Several stocks achieved double-digit gains so far in 2016. Including divideds, the shares of Unipetrol added 15.5% year-to-date.

Trading activity on the PSE fell 17% year-on-year in the first eight months of 2016. The 2015 recovery of trading activity (+7% year-on-year) thus turned out to be short lived.

Société Générale increased the weight of equities in its global portfolio from 45% to 50%. It now keeps equities as neutral.

The current macroeconomic conditions with the eased monetary policy of central banks are still favourable for equity markets. Therefore, we maintain a positive stance on stocks for the next 12 months for most indices.

From a sectoral perspective in Europe, the most preferred sectors include automobiles & parts, construction & materials, oil & gas and insurance companies. On the contrary, capital goods, investment banks, telecommunications and utilities belong among the least preferred sectors

The Prague Stock Exchange could deliver a double-digit return in the next 12 months. We believe financial stocks are among the most attractive on the Czech equity market. From other stocks under our coverage, we recommend buying Philip Morris Czech Republic and Pegas Nonwovens. For other companies, we keep a Hold recommendation. Out of these stocks, O2 shares currently have the largest upside potential to our target price.