CEE’s differentiated upswing to broaden across the region in 2012


  • CEE region with real GDP growth of 3.8 per cent in 2011
  • “Buy” recommendation for Russian and SEE equity markets
  • Aggregate earnings growth of 31.8 per cent forecast for the ATX companies in 2011
  • Recommendations: OMV, conwert, Semperit, CEZ, Magyar Telekom

""Greece and the public debt crisis are indeed dominant, but the focal points in Central and Eastern Europe lie elsewhere"", Peter Brezinschek, Head of Raiffeisen Research, a unit of Raiffeisen Bank International AG (RBI), comments. The chief analyst has justified hope that the quite differentiated upswings in 2010 will expand across the region after a transitional year 2011.

""To date, all of the countries with highly competitive export economies clearly have their noses in front"", Brezinschek explains. ""Countries with close ties to Germany and German businesses in particular are enjoying expansion, which has already helped the economies in Poland and Slovakia reach their potential growth rates."" Brezinschek expects a GDP growth rate of 3.3 per cent for 2011 in Central Europe (CE). In contrast to that, countries in Southeastern Europe (SEE) have posted sluggish progress in the first half of 2011, resulting in an expected growth of 1.9 per cent over the full year. Brezinschek attributes the growth difference to the fact that domestic consumer demand has yet to recover. He expects improvements in 2011 and exports to be overtaken as growth driver in 2012, which will slow markedly as European growth trends turn down. Against this backdrop, and calculating with a GDP growth of 4.5 per cent for 2011 in the CIS region, Brezinschek sees his 2011 forecasts for Central and Eastern Europe (CEE) of 3.8 per cent well supported. Looking ahead to 2012, there might be a risk of overestimated domestic economic activity.

For Austria, the Raiffeisen Research experts expect real GDP growth of 3.3 per cent in 2011, which represents one of the strongest rates in the eurozone. However, with declining export activity and consumption spending slowly to return to normal, growth is projected to fall just short of 2 per cent in 2012.

Several Central Banks in CEE to raise interest rates

Based on the estimation that inflation rates across the region should fall from the second half of this year until mid-2012, Brezinschek believes that only these central banks in CEE will increase their rates, which focus on the European Central Bank’s (ECB) monetary policy. ""We feel there is a need for action in Poland and the Czech Republic in particular, while Russia is likely to reach the top at 8.5 per cent in the second half of the year,"" Brezinschek explains. He thinks that even in countries like Hungary and Romania where inflation rates are expected to be far lower due to base effects, currency factors may result in key interest rates remaining constant until the end of the year.

Stronger performance of most CEE currencies

Based on the assumption that the Greek situation will calm down in the short term, Brezinschek anticipates a slightly stronger performance for most CEE currencies associated with an appreciation of the euro. ""However, the current yield spreads in relation to the eurozone make us refrain from recommending a clear ‘buy’ for bonds, which applies both for eurobonds issued in CEE as well as local government bonds,"" he explains.

CEE equity markets: buy recommendations and overweighting for Russia

""The encouraging first six months on the CEE stock exchanges – with the exception of Vienna and Moscow – should be followed by benign trends in the second half of the year. The current momentum of economic activity is favouring earnings growth rates in the region, most of which are well in the double-digits,"" the Raiffeisen Research analyst predicts. Alongside Russia, he also favours the SEE-countries, which are benefiting from the low base effects caused by the recession. A provisional solution to the Greek problem should provide the index with some breathing space and generate price gains between 7 and 10 per cent.

Austrian growth momentum still intact

Austria ranks among the countries that have managed to display the most robust rates of growth within the eurozone, with exports and investments representing solid drivers of economic activity. Austria is expected to grow more strongly than the eurozone as a whole again (plus 2.0 per cent), posting real GDP growth of 3.3 per cent. “With public debt remaining such a hot topic we consider the relatively stable public finance situation in Austria a plus point for the local capital market,” states Birgit Kuras, Chief Analyst of Raiffeisen Centrobank AG. What is more, economic growth in the CEE region as a whole is forecast to amount to a remarkable 3.8 per cent this year, thus offering continuing support for the Austrian market.

Slightly positive conditions for the ATX

In the past quarter the Austrian equity market posted a rather weak performance. Alongside the general stumbling blocks such as the public debt crisis and concerns about the economic activity, local issues are also generating some ill-feeling among investors. For example, fears about capital increases at one or other of the heavyweights in the index were not without consequences for share price development. In addition, it is becoming increasingly clear that the new capital gain tax has had a negative impact on the trading floor and quite evidently resulted in significant purchases being brought forward last year. “What is most striking is the fact that the trading volumes on the Vienna Stock Exchange have fallen sharply in the last two months,” Kuras points out. Nevertheless, a solid increase in earnings growth is anticipated this year. While the estimates for the EuroStoxx 50 come in at just 9.9 per cent, Kuras forecasts aggregate growth of 31.8 per cent for the ATX companies, followed by 20.9 per cent in 2012. With a P/E ratio of 12.0 for 2011 and 9.9 for 2012 the Austrian market is not really expensive. Birgit Kuras expects the ATX to reach 2,850 points by the end of September and 3,000 points by the end of December 2011.

Equity Markets Recommendations: OMV, conwert, Semperit, CEZ, Magyar Telekom

While the main support for equity markets are clearly valuation levels relative to historical levels, the above-mentioned macro risks are obviously here to stay. Raiffeisen Centrobank therefore does not favour a specific sector but rather follows a stock-picking strategy.

“Growing emerging market demand, the political crisis in the MENA (Middle East and North Africa) region and rising production costs are the reasons why we see the future oil price beyond USD 100/bbl only. Consequently we continue to favour upstream companies as well as integrated and gas-biased players while we remain cautious on downstream-biased companies,” confirms Stefan Maxian, Head of Company Research of Raiffeisen Centrobank AG. The preferred stocks therefore remain OMV, as the uncertainty about the future financing structure has been eliminated after the recent capital increase and the hybrid bond placement, - and LUKOil based on the valuation and the company’s upstream exposure.


The banks’ performance in the third quarter will be impacted by news-flow on European stress tests, Basel III criteria, continuing discussions on euro-peripheral debt issues and bank debt discussions reappearing in some countries. Among financial stocks real estate stocks are therefore rather favoured. The recovery of CE/SEE real estate markets continues to show diverging trends across countries. That notwithstanding, investment activity is spreading with sluggish markets such as Hungary and Romania showing first signs of an increasing investors' interest and higher liquidity. Austrian property stocks continue to trade with significant discounts to their reported net asset values. “We continue to recommend conwert due to its more defensive profile and exposure to the strong German market as well as Immofinanz on the back of a continuously successful optimisation process which offers significant upside in our view,” states Maxian.


CEE telecommunication operators still face a difficult environment. The figures for the first quarter 2011 mainly disappointed (the exception was Centrobank’s “buy” call for Magyar Telekom) given ongoing harsh competition, fixed-to-mobile substitution and regulatory changes like MTR reductions and cuts of roaming tariffs. Furthermore jumping data volumes did not yet have a visible positive impact on profitability. A possible improvement in the second half of 2011 could be driven by a hopefully improving economic environment in CEE, which might for example be reflected in lower unemployment rates. Among the operators Magyar Telekom is favoured showing a more resilient operating development than its peers in the last quarters. A possible abolishment of the crisis tax enables the company to raise its DPS from 2013 onwards.


While utilities, especially Polish, were among the outperformers in the second quarter, Raiffeisen Centrobank expects a more difficult quarter going ahead as low water levels and the uncertainty regarding the new EU climate protection policy and free CO2 allocation remain. Only CEZ has already received a draft law and, additionally, is able to export to Germany, which is why we confirm our “buy” call.


Many industrial companies boast good order trends so that we forecast a solid reporting season also for the second quarter, characterised by unbroken strong sales. However, the threat of margin pressure due to rising raw material costs must be taken into consideration. Following the latest share price corrections, Maxian sees upside potential for RHI and Semperit and also regards AMAG as very attractively valued expecting a recovery of the share price given the bright prospects of the company and aluminium prices topping our forecast.

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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. In CEE, RBI operates an extensive network of subsidiary banks, leasing companies and a range of other specialised financial service providers in 17 markets.

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 60,000 employees service about 14 million customers through around 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 owns around 78.5 per cent of the common stock, the remainder is in free float. RBI's shares are listed on the Vienna Stock Exchange. RZB is the central institution of the Austrian Raiffeisen Banking Group, the country's largest banking group, and serves as the head office of the entire RZB Group, including RBI.

For further information please contact Michael Palzer (+43-1-71 707-2828, [email protected]) or Alexandra Jocham (+43-1-71 707-5627, [email protected])http://www.rbinternational.com, http://www.rzb.at

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Raiffeisen Centrobank AG, the Equity House of Raiffeisen Bank International, is a leading Austrian investment bank with a strong focus on the CEE region, offering the entire spectrum of services and products associated with stock, derivatives, and equity capital transactions, including and excluding the stock exchange. Based on this position, the specialized bank also offers exclusive, individual private banking.http://www.rcb.at