News

Macroeconomic environment remains favourable for equities

The U.S. presidential elections brought an increased volatility on global equity markets. The surprising election of Donald Trump reverted the negative trend on equity markets, which had been losing ground due to pre-election uncertainty. Equity markets regained most of their losses amid expectations of fiscal expansion, large investments in infrastructure and looser regulations under the new president, with U.S. stocks gaining the most. The sectors of financial institutions, telecommunications and industrials were the biggest beneficiaries.

The PSE’s PX index added 5.1% in 4Q16. However, from a full-year perspective, the Prague bourse still underperforms most major and regional equity markets, losing over 5% since the beginning of the year.

The biggest losers on the PSE so far this year include Vienna Insurance Group and Kofola. Despite strong growth of 17% in the fourth quarter, shares of the insurance group VIG still lost 19% YTD, mainly due to a strong fall in the first quarter. Shares of drinks producer Kofola continue to fall and have lost 24% since the beginning of the year.

The biggest gainer of the fourth quarter is CME with 25.5% growth; however, Unipetrol and Stock Spirits take the lead from the whole-year perspective. Including dividends, shares of both companies have added more than 15 and 23% year-to-date.

Trading activity on the PSE grew significantly 50% in the fourth quarter due to Moneta Money Bank’s two SPOs and inclusion of its share in the MSCI Czech Republic index. However, from the whole-year perspective, traded volume is still 5% below last year’s levels.

SG increased the weight of equities in its global portfolio from 50% to 58%. The structural switch from monetary to fiscal policy impetus in developed countries is a strong incentive to switch out of expensive bonds into equities.

We maintain a positive stance on most stock indices for the following year. Although we see rising volatility on the markets at the beginning of the year connected with Donald Trump’s election as U.S. president, ECB tapering and Fed policy repricing, the macroeconomic situation remains positive.

The most preferred sectors include automobiles & parts, construction & materials, oil & gas and insurance companies. On the contrary, capital goods, telecommunications and utilities belong among the least preferred sectors.

The PSE could deliver a return of 7% in the next 12 months. We believe financial stocks are among the most attractive. From other stocks under our coverage, we recommend buying O2 CR, Philip Morris CR and Pegas Nonwovens.