March 2009 marked the turning point: Massive price losses came to an abrupt halt and were followed by a veritable explosion in stock prices. This triggered investors to return to the fund market, which has seen an influx of capital again since the middle of the year. ERSTE-SPARINVEST reported a fund volume of EUR 26.7 billion (as of 31 December 2009), meaning that it grew two times faster than the Austrian fund market, which gained 8.4% to reach a volume of EUR 136.7 billion in this "turnaround year". In light of lower market interest rates and investors� legitimate earnings expectations, the chairman of the Managing Board, Heinz Bednar, sees good prospects for a continued influx of capital into Austrian investment funds in 2010. The substantial earnings achieved in 2009 have helped to gain investors' confidence and the outlook for 2010 is very promising:
Essential points in the annual outlook for 2010:
- ERSTE-SPARINVEST raises volume by 15.7 per cent to EUR 26.7 billion,
Erste Asset Management manages EUR 40.5 billion (as of the end of 2009)
- Gradual economic recovery continues, no inflationary pressure
- Stocks overweighted: focus remains on emerging markets
- Bond funds: emerging markets (including CEE) and corporate bonds preferred
- Higher yields with government bonds from Eastern Europe: new ESPA NEW EUROPE BASKET 2015 issued with fixed coupon of 4.25 per cent p.a.
"Although the path, the speed and the extent of the upswing are fraught with uncertainty, the economic recovery offers good prospects for the financial markets in 2010. Thanks to their broad diversification, high level of transparency and monitoring by governmental regulatory authorities, investment funds are the right choice for investors," said Bednar.
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Economic recovery still standing on shaky ground
ERSTE-SPARINVEST Chief Economist Gerhard Winzer anticipates a significant recovery of the global economy along with continued normalisation on the financial markets in 2010. However, the recovery will occur at a bumpy, slow and uneven pace. Although capacity utilisation in industry and lending to private individuals and companies are still at low levels, they have improved in recent months. According to Winzer, unemployment will not fall far below the current highs over the course of the year. Wages will therefore barely increase, which means that no inflationary pressure will be exerted on the markets. The extremely expansive monetary policies will be withdrawn cautiously, gradually and in a transparent manner.
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The current interest rate level will only be considered too low once the global economic recovery has shown itself to be sustainable and the demand for credit picks up again. The key interest rates in the US and the Eurozone will be raised at the earliest in the second half of the year, if at all. "And if they are raised, it will be by half a percentage point at the most." The interest markets are already pricing in an increase on this scale.
According to Winzer, "The sustainability of the economic recovery is still up in the air. The important thing now is that global, internally driven growth begins following the end of the repair phase."
Outlook for bond funds 2010: Credit risk and emerging markets preferred
ERSTE-SPARINVEST sees favourable conditions for corporate bonds and high-yield bond funds as well as for bond funds connected to the emerging markets, which are profiting from rising currency values and strong economic growth. Due to the region�s convergence potential and low government debt in comparison to Western Europe, CEE government bond funds are particularly attractive. ERSTE-SPARINVEST�s bond experts see rather low earnings potential in traditional European and international government bonds, US mortgage bond funds and inflation bond funds.
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Outlook for equity funds 2010: Stock markets on the road to normalisation
The stock markets already anticipated the economic upswing in 2009. In global terms, equities have seen a 26 per cent increase in value (MSCI World), and all of the indexes are showing clear gains. The stock exchanges in the emerging markets performed even better and generated 70 per cent capital gains for investors. Higher prices along with falling earnings have brought valuations up from the absolutely undervalued level seen a year ago. Traditional valuation figures such as the price-earnings ratio and price-to-book ratio are still showing attractive valuations in most segments. Corporate earnings based on ROE have reached a low of 7 per cent, so they have plenty of room to climb back up to the high of 16 per cent seen in December 2007. According to ERSTE-SPARINVEST Chief Investment Officer Harald Egger, an increase in earnings could provide new stimulus for equity funds.
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The improved economic outlook, the sustained upward trend since March 2009 and an expected increase in corporate earnings of around 20 per cent are also favourable developments for equity investments. And the technical indicators are also suggesting that the upward trend will continue. ERSTE-SPARINVEST recently increased the equity ratio of the mixed fund portfolio under its management to the maximum level of 84 per cent. The portfolio now has a regional overweighting on the emerging markets, especially on the Eastern European stock markets. ESPA Europe is taking a neutral stance on the developed exchanges, with a preliminary underweighting on the US and with Japan looking attractive in local terms.
At the sector level, commodity equity funds and healthcare are interesting for investors.
Outlook for commodities and currencies
The stabilisation and improvement of the economic cycle benefits commodities since they are dependent on economic development. "Gold is currently in the midst of a long-term bull market. However, it should be mixed with other asset classes only to a modest degree because we expect extreme price fluctuations," said Egger.
In addition, there are good chances for the emerging market currencies in particular to gain strength in currency relations. Caution is advised when it comes to the Japanese yen.
Enquiries: ERSTE-SPARINVEST, Press and Public Relations
A-1010 Vienna, Habsburgergasse 1A, fax: 0043 (0) 50 100 ext. 17102
Dieter Kerschbaum, Tel. 050 100 ext. 19858,
e-mail: dieter.kerschbaum@sparinvest.com
Paul Severin, Tel. 050 100 ext. 19882,
e-mail: paul.severin@sparinvest.com
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