Bancherul - BANCI / ENGLISH / Erste Bank: Equities to slowly regain appeal in 2012; CEE stocks favoured versus Eurozone

Negative sentiment and risk aversion still prevail and equity risk premia remain at high levels. Thus, Erste Group analysts remain cautiously optimistic for equity markets for 2012, seeing equities in CEE as more attractive than in the Eurozone, said the bank in a press release.

“Sovereign debt crisis needs structural, long-term solutions, liquidity measures will calm down markets and provide the time to put solutions at work. Overall, we do not expect any recovery move for equity markets to be as strong as in 2009. Recovery will come more quietly, while the slowly recovering sentiment should find its expression in stock market performance. We would be pleased to see this effect already sneaking in during 1Q12, but would not be surprised if it takes a bit longer,” commented Henning Esskuchen (foto), Co-Head of CEE Equity Research.

Erste Group analysts expect a decline in GDP growth in 2012 and again forecast negative growth for Hungary and Croatia in 2012. “We would expect the sovereign debt crisis to translate at least into a technical recession in 4Q and 1Q for the region, or at least for individual countries and consequently, our recovery outlook for equities depends on this scenario holding up, allowing for a more positive anticipation of economic development in FY12,” said Esskuchen.

Oil & gas with most appealing growth profiles

The ZEW/Erste sentiment indicator delivers some support for this, with a majority of investors not only seeing equity as a more attractive asset class compared to 2011, but also seeing equities in CEE as more attractive than in the Eurozone.

“In economically hard times, one should concentrate on companies that still manage to achieve high profitability, while also reporting stable financial figures. This is true for all of our Austrian top picks. An attractive dividend yield is also a key element in an investment decision. In our view, investors will prefer stable companies, high debt coverage ratios, net cash companies and defensives in 2012,” said Esskuchen.

A positive reading is that almost all sectors have started showing improving earnings revision rates. Facing fears of recession, or at least lower growth rates, certainly weighs on basic resources. Analysts consider insurance and telecom as interesting sectors, which should also do well in 2012 and are also positive about CEE utilities, at least as a base / defensive investment. Real estate might not remain as much in focus. Analysts expect housing sales and the automotive market to contract in 2012, but white goods demand should continue its growth in 2012, in line with GDP growth (especially true for Turkey). Food retail is one of the most defensive sectors in a climate of economic slowdown.

“To summarize, we would keep banks and insurance on the watch list, would favor oil & gas, would add telecom and utilities as defensives and for dividend yield and a bit of healthcare and would stay away from construction and materials and other clear cyclicals for as long as recessionary trends steer market sentiment. We also expect 2012 to be positive for all retail companies, due to the continued growth of consumption in CEE,” concluded Esskuchen.