Global Strategy Q3 2016

Transcription

Erste Group Research
Global Strategy | All Assets | Global
December 2016
Global Strategy Q1 2017
The global economic environment has improved and a turning point in the monetary policy of
Fed and ECB is coming into view. Stock markets should benefit from solid earnings growth in
this environment, and HY and hybrid bonds should deliver a stronger total return than IG
corporate senior bonds. Safe asset classes should perform below average in the course of
the year, after a consolidation phase in Q1.
Investment Strategy Q1 2017:
Govt. bond yields
Germany (10Y)
USA (10Y)
March 2017
0.50
2.40


Currencies
EURUSD
CHF


March 2017
1.06
1.09
Equity Performances
Global
Europe
USA



March 2017
0%/ +5%
0%/ +5%
0%/ +5%
Source: Erste Group Research
Prices as of
15.12.2016 22:00
Report Created
16.12.2016 22:00
Report published
16.12.2016 22:10
Editor
Fritz Mostböck, CEFA
Head of Group Research
Economy
The global economic environment has improved, which is not least evident
in the rally in commodity prices, which reflects a cyclical upswing. US
economic growth has recently accelerated and the economic program of the
new US president should stimulate the economy and support inflation.
Economic growth in the euro zone is strongly supported by domestic
demand and has shown itself to be remarkably resilient to date, considering
the Brexit vote and the political uncertainty resulting from upcoming
elections in a number of euro area countries. In 2017, we expect GDP
growth of 2.1% in the US and 1.9% in the euro zone.
Bonds
In view of ongoing strong US economic data releases and the associated
preliminary signs of mildly increasing inflation pressures, the outlook for US
monetary policy in 2017 is highly uncertain. Moreover, Donald Trump's
economic program includes a number of economic stimulus measures. We
expect four rate hikes in 2017 and additional declines in treasury prices.
Even though the European Central Bank will reduce its securities purchases
from April 2017, its comprehensive monetary policy accommodation will
remain in place, as inflation – despite expected increases - will stay below
the ECB's target for some time to come. Even though political uncertainty in
Europe is apt to frequently lead to periods of heightened volatility, we still
expect yields on German sovereign debt to surge, in view of rising inflation
rates, the ongoing economic recovery and the US bond market leading
accordingly. That means there will be headwinds for IG corporate bonds as
well, and HY and IG hybrid bonds should generate stronger total returns in
2017.
Currencies
In spite of expected rate hikes in the US, we believe that the US dollar is
already trading at a high level, as it has priced in a lot in advance.
Fundamental factors suggest that appreciation pressure on the Swiss franc
should ease, although the safe haven currency is currently still supported by
global uncertainty. Demand for gold is currently declining somewhat due to
rising bond yields and the greater relative attractiveness of stock markets.
Note:
Our estimates are in absolute and not in relative
terms. Bond yields and equity market returns in
local currencies. Past performance is not a reliable
indicator of future performance.
Stocks
Earnings and sales growth estimates for the global stock market are
currently positive, particularly in the US. The energy sector, consumer
cyclicals, the industrial sector and the technology sector are currently
exhibiting the best risk-reward profile. We expect the uptrend in stock
market indexes to continue in Q1 and are forecasting a moderate advance
in the World Stock Index in a range of 0% to 5%.
Erste Group Research – Global Strategy Q1 2017
For the exclusive use of Baerbel SIMON - Erste Group
Page 1
December 2016
Contents
Investment Strategy Q1 2017 ........................................................................ 3
Euro Zone Economic Outlook ..........................................................................4
US Economic Outlook ......................................................................................5
CEE Economic Outlook....................................................................................6
BRIC Economic Outlook ..................................................................................7
Bonds ...............................................................................................................9
US ..................................................................................................................10
CEE Government Bonds ................................................................................11
EUR-Corporate Bonds ...................................................................................12
Currencies ....................................................................................................13
US-Dollar ........................................................................................................13
Swiss Franc ....................................................................................................14
Gold in USD ...................................................................................................15
Stocks............................................................................................................16
Global .............................................................................................................16
Global Sectors (1) ..........................................................................................17
Global Sectors (2) ..........................................................................................18
Global Sectors (3) ..........................................................................................19
Europe ............................................................................................................20
USA ................................................................................................................21
CEE ................................................................................................................22
Tables & Appendix .......................................................................................25
Economic indicators .......................................................................................25
Forecasts .......................................................................................................26
Consensus estimates .....................................................................................27
Contacts ........................................................................................................28
Disclaimer .....................................................................................................29
Global Strategy Team
Investment Strategy
Economics
USA
Eurozone
CEE
BRICs
Currencies
US-Dollar
Gold
Swiss Franc
Bonds
US
Germany
CEE
EUR Corporate Bonds
Equities
Global
Europe
USA
CEE
BRICs
Friedrich Mostböck, CEFA, Gudrun Egger, CEFA
Rainer Singer
Gerald Walek
Juraj Kotian, Zoltan Arokszallasi
Hans Engel, Stephan Lingnau
Rainer Singer
Hans Engel
Margarita Grushanina
Rainer Singer
Rainer Singer
Juraj Kotian, Zoltan Arokszallasi
Peter Kaufmann
Stephan Lingnau
Hans Engel
Henning Esskuchen
Email: [email protected]
Phone numbers: listed in the appendix.
Page 2
December 2016
Investment Strategy Q1 2017
Yields
Estimates
Q2 17
Q3 17
Q1 17
0.37
0.50
0.80
0.80
1.00
0.62
0.70
1.00
1.00
1.20
2.62
2.40
2.60
2.70
2.80
0.49
0.67
0.47
0.48
0.49
3.38
3.21
3.08
3.05
3.05
3.59
3.40
3.25
3.20
3.35
2.51
Source: Erste Group Research estimates
2.45
2.50
2.55
2.60
Estimates
Q2 17
Q3 17
Q4 17
10y. Govt. bonds
current
Germany
Austria
US
CEE
Czech Republic
Hungary
Poland
Romania (5Y)
CEE
Global
Currencies
EURUSD
CHF
Gold (USD)
CZK
HUF
PLN
RON
Q4 17
current
Q1 17
1,04
1,06
1,08
1,10
1,07
1,09
1,10
1,11
1,12
1.127
27,02
1.160
27,0
1.220
27,0
1.260
27,0
1.260
26,4
1,12
313,22
315
315
315
315
4,44
4,43
4,40
4,41
4,39
4,52
4,50
4,51
4,51
4,51
Estimate
FTSE Indices
Q1 2017
Global
Europe
USA
CEE




BRICs
Brazil
Russia
Emerging Mkts.
Equities
India
China
min
0%
0%
0%
max
+5%
+5%
+5%
FX
0%
+5%
EUR


0%
0%
+5%
+5%
BRL


0%
+5%
INR
0%
+5%
CNY
USD
EUR
USD
RUB
Page 3
December 2016
Euro Zone Economic Outlook
Acceleration in growth expected in 2017
The economy of the euro zone grew by 1.7% in Q3, indicating that despite
the Brexit vote, growth has stabilized compared to the previous quarter. On
the component level consumer spending continued to be the most important
pillar of growth in the euro area. In a number of countries consumer demand
benefited from higher real wages (supported by low energy prices), as well
as ongoing declines in unemployment. Investment also remained a key
factor boosting economic growth in the euro zone, whereas weakness in
foreign trade weighed on growth in 2016. On the country level, Germany
and Spain were once again the locomotives of the euro zone economy.
Germany's economy is the most competitive in the euro area and Spain
continues to benefit from far-reaching reforms implemented in recent years.
By contrast, France and Italy have disappointed with subdued growth rates,
similar to 2015. The reasons are primarily the lack of political will to tackle
reform in France, and the poor price competitiveness of Italy's economy.
Germany and Spain remain the
locomotives of the euro zone
economy
0.8%
0.8%
0.8%
0.7%
GDP growth (q/q), regional
Spain, Germany and France the pillars of growth in the
euro zone
0.7%
0.9%
0.1%
0.4%
0.4%
Jan. 2016
300
Dec. 2008
200
100
-0.1%
-0.2%
Apr. 2011
600
400
0.0%
-0.1%
700
500
0.2%
0.2%
0.3%
0.3%
0.2%
0.4%
0.2%
0.5%
0.4%
0.6%
0.1%
0.7%
0.4%
0.6%
0.8%
Commodity price index
Gradual advance since January 2016 indicates cyclical
recovery
FR
IT
Q4 2015
Q1 2016
DE
Q2 2016
ES
Q3 2016
Source: Eurostat, Erste Group Research
Acceleration in global growth
should support euro zone
economy in 2017 as well
0
Nov-00
Sep-02
Jul-04
May-06 Mar-08
Jan-10
Nov-11
Sep-13
Jul-15
Source: AMECO, Erste Group Research
The global economic environment has improved in the course of the second
st
half of 2016. A persistent increase in commodity prices since the 1 quarter
of 2016 points to a broad-based cyclical recovery and the IMF also expects
global growth to accelerate in 2017. In this environment we expect exports
to provide stimulus for growth in the euro zone (particularly in Germany).
Growth in the close trading partners France and Italy should benefit from
this as well in 2017. All in all, we expect GDP growth of 1.7% in the euro
zone in 2016, followed by a slight acceleration to 1.9% in 2018. The
main downside risks for our outlook consist of the many election scheduled
for 2017, the expected start of Brexit negotiations (March 2017), as well as
Italy's ailing banking sector. However, as the resignation of Italian prime
minister Renzi after losing the referendum on constitutional reform has
illustrated, financial markets are increasingly relaxed in their response to
political upheaval. Moreover, we believe that the expected economic
recovery will tend to obscure many problems.
Page 4
December 2016
US Economic Outlook
US economy should be off to a good start in 2017
Preliminary indicators suggest that the growth momentum of the US
economy has weakened slightly in the fourth quarter relative to the previous
quarter. Nevertheless, with that the US economy has still achieved a
significant acceleration compared to the weak first half of the year.
Preliminary data releases indicate that growth in consumer spending was
unchanged in the fourth quarter, capital expenditures have improved, while
foreign trade has weakened. At this point we see no signs for a significant
change in the pace of economic growth in the coming quarter. The
environment is actually arguing for a moderate acceleration. Higher oil
prices should boost capital spending in the shale oil/ gas drilling industry
and the massive package of economic stimulus measures planned by the
Trump administration could improve sentiment. Trump's economic program
inter alia includes tax cuts and incentives for infrastructure investment. At
the moment is impossible to gauge the extent to which his program will
actually be implemented. After all, even though the Republican party has a
majority in both chambers of Congress, the increase in government debt
associated with Trump's plans is not uncontroversial among the party's
representatives. Tax cuts should be expected though.
The inflation rate is set to rise significantly in the first several months of the
new year, which is largely attributable to base effects related to energy
prices. Moreover, the progress in the US economic recovery is also
reflected in core inflation (excl. energy and food). Domestic demand-driven
services prices have been in a mild uptrend since early 2016, which should
continue. At the same time, goods prices are likely to exert a dampening
effect though. Nevertheless, upside risks for inflation have increased, not
least because the new president will implement further policy measures in
the course of the year. While the effects of these are difficult to quantify as
long as no specifics are available, the cornerstones of the economic
program (tax cuts, tariffs, deportation of illegal immigrant workers) are all
prone to stoking inflation in an environment of very low unemployment.
US economy has moved past its trough
GDP growth, q/q annualized
Prices of services have accelerated
PCE core inflation and individual components, y/y in %
3.0%
1.0%
3.5
2.9
Forecast
0.5%
2.5%
0.0%
3.0
2.0%
-0.5%
2.3
2.5
2.1
2.0
1.5%
-1.0%
2.0
-1.5%
1.0%
1.4
1.5
-2.0%
0.5%
0.9
1.0
-2.5%
0.8
0.0%
-3.0%
Jan-15
0.5
May-15
Sep-15
Jan-16
May-16
Sep-16
Services (incl. Housing)
0.0
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Source: Bloomberg, Erste Group Research
Q4 2016
Q1 2017
PCE excluding food and energy
Durable goods, r.s.
Page 5
December 2016
CEE Economic Outlook
Growth in the third quarter showed a slowdown in CEE vs. the second
quarter. Industrial production was showing unexpected weakness in several
countries, while EU-funded investments have still not picked up after strong
growth in 2015. Household consumption continues to be the backbone of
overall growth in CEE, as wage growth and increasing employment are still
strengthening the purchasing power of households. Compared to actual
data, growth surprised to the downside in Poland (at just 2.5%), in the
Czech Republic (1.9%) and in Romania (4.4%, but we had expected 5.2%
due to fiscal easing). On a positive note, we can see improving economic
conditions in Croatia and Serbia. The recently ailing Croatia expanded 2.7%
(y/y), while Serbia expanded 2.6%. Due to the downside surprise in Poland,
we cut our forecast for average growth to just 2.4% for 2016, and to 3.0%
for next year.
Next year, growth should actually be a shade higher (3.0%) than the level
expected for this year (2.8%), as EU-funded investments should pick up
somewhat, while some countries in CEE continue to pursue fiscal relaxation
(especially Romania and Hungary).
Annual inflation numbers have started to go up everywhere in the last few
months, as the base effect stemming from oil prices started to exert upward
pressures instead of the former, downward pull. Until end-1Q17, the oil
price is likely to exert increasingly strong upward pressure on inflation.
However, the oil price (unless there is a longer-run upward trend starting) is
not very likely to cause a similar effect later next year. As for other factors,
the increase in wages and strengthening household consumption are also
contributing to an increase in prices – although core inflation is still rather
muted everywhere and falls short of central bank targets. Imported
disinflation is still a factor for CEE countries. We see inflation averaging
1.3% next year for CEE, vs. -0.4% this year.
While the fiscal situation has improved a lot for many CEE countries and all
CEE countries except for Serbia cut their deficit below 3% of GDP, we see
Romania and Poland as having very limited fiscal space to maneuver in
2017. Their fiscal policies in 2016 are especially to blame, as these resulted
in unprecedented fiscal loosening (Romania), or an ambitious social
spending program insufficiently covered by regular tax revenues (Poland).
While the deficit in both countries could end below 3% of GDP in 2016, the
margin will be very tiny and some counter measures will definitely need to
be adopted in order to keep the deficit below 3% of GDP in 2017. While we
do not expect the EC in its May assessment to recommend that the Council
put Poland and Romania under the Excessive Deposit Procedure in 2017,
there will be an explicit warning of this in 2018 unless corrective measures
are taken. Fortunately, a recent proposal by election-winner PSD in
Romania points at reversing much of the relaxation planned for 2017, albeit
much depends on exact implementation. Croatia, on the other hand, will
likely be abrogated from the Excessive Deficit Procedure in June.
Page 6
December 2016
BRIC Economic Outlook
China: Bloomberg GDP indicator
China
11
10
10.0
in %
9
8
7.0
7
6
5
Okt.10
Jul.11
Apr.12
Jän.13
Okt.13
Jul.14
Apr.15
Jän.16
Okt.16
RMB-USD exchange rate
9
8.5
8
7.5
Economic growth of at least 6.5% is targeted in 2017. China's economic
situation continues to stabilize. The Bloomberg GDP indicator currently
th
suggests stable growth of 7% in the 4 quarter. China's leadership is
targeting GDP growth of 6.5% at a minimum in 2017. China continues to be
focused on its economic transformation toward services, as a result of
which we believe that the pace of economic growth will decrease
continuously in the future. The planned loosening of government control
over a number of industries will moreover lead to greater volatility in
economic activity in China over the medium term. For instance, the gradual
relaxation of capital controls has already resulted in considerable volatility in
the renminbi's previously comparatively stable exchange rate vs. the US
dollar. The concurrent decrease in foreign exchange reserves is closely tied
to the liberalization of the capital account and seems likely to continue over
the medium term as well.
7
6.5
6
5.5
5
Aug.05
Feb.07
Aug.08
Feb.10
Aug.11
Feb.13
India: GDP
Aug.14
Feb.16
In our assessment, the very pronounced credit growth underway since
2011 represents the greatest risk for China's economy in 2017.
However, risks for China's economy should ease in line with the expected
acceleration in global growth in 2017. Another potential risk factor could be
growing tensions with the administration of president-elect Donald Trump,
who already uttered harsh words against China during his election
campaign (e.g. regarding currency manipulation, trade barriers).
India
India's economy posted GDP growth of 7.3% (y/y) in Q3. An increase in
the growth rate of the GDP component consumer spending to 7.6% after
6.7% in Q2 was one of the main drivers of the slight acceleration in growth
compared to the previous quarter. However, investment continued to exhibit
a negative performance, with a decline of 5.6% in Q3 (-3.1% in Q2). For
2016 as a whole, GDP growth of 7.4% is expected (IMF). Next year India's
economy is expected to grow by 7.5%.
Source: Datastream
India: INR vs USD & EUR
Source: Datastream
The currency reform enacted in early November should have a
negative effect on economic growth in the short term. In order to curb
corruption and tax evasion, the government has scrapped banknotes worth
USD 227 bn. overnight (85% of all circulating currency). 500 INR and 1,000
INR banknotes were declared invalid and citizens had to either exchange
them for new banknotes or deposit them in bank accounts. The first
economic data released since the currency reform indicate a slowdown in
growth, particularly in the services sector. The services purchasing
managers index fell from a 3-year high of 55.4 points in October to 49.1
points. The cash shortage was a major reason for the decline in new orders.
India's central bank has cut its repurchase rate by 25 basis points to
6.25% in Q4. The inflation rate has declined to 4.2% in October and has
exhibited a mild downtrend in the course of the year. The Indian rupee has
depreciated slightly against the USD, declining by -2.3% since the
beginning of the year.
Page 7
December 2016
Brazil: Industrial Entrepreneur
Confidence Index
Brazil
Brazil's economy is at a turning point from recession to growth.
Consensus estimates are calling for a 3.3% contraction in GDP in 2016.
Next year the economy is expected to grow by 1% again though, after a two
year long recession.
Source: Datastream, Erste Group Research
Brazil: Growth in industrial production
and retail sales negative year-on-year
The consensus forecast expects an unemployment rate of 11.8% in the
coming year, with a decline to 11.5% seen only in 2018. By contrast,
consumer price inflation should decline more strongly than hitherto
assumed. An inflation rate of 8.8% is expected in 2016, which should
decrease to 5.4% in the coming year.
Business confidence continues to improve. The Industrial Entrepreneur
Confidence Index has risen to 52.3 points. Gradual improvement is evident
in the services sector as well. The associated confidence indicator has
recently advanced to 44.4 points.
At the end of November, the central bank has cut the base rate from
14.25% to 13.75%. The consensus expects further rate cuts in the coming
year. A decline in the base rate to 10.7% is expected in 2017. Long term
government bonds currently trade at a yield-to-maturity of 12.1%.
Russia: quarterly GDP growth
Russia
The outlook for Russia's GDP growth has improved as a result of
stable energy prices and structural economic adjustments.
GDP growth estimates for 2016 have been boosted considerably from a
previous rate of -1%. In the meantime the consensus expects only a GDP
contraction of 0.6% in 2016, to be followed by growth of 1.3% in 2017.
Russia: central bank refinancing rate
Inflation continues to decline. The consensus estimate is +7.2% for 2016
and +5.5% for 2017. The current trend in the inflation rate represents a
significant improvement over the previous year, when consumer prices rose
by 15.6%.
Russia's current account balance remains positive. A surplus of 2.9% of
GDP is expected to be achieved in 2016. This should expand to 3.3% in
2017. The budget deficit should reach 3.7% this year and should decrease
to 2.8% of GDP in 2017. The Russian central bank has responded to the
improvement in the macroeconomic situation by cutting its refinancing rate
from 10.5% to 10.0% in September.
Page 8
December 2016
Bonds
Euro Zone Main Refinancing Rate
German Bund
Yield Forecast Q1 2017
0.00 %
0.5 % (10Y)
ECB sets policy course for 2017
On 8. December the ECB Council decided to reduce the size of its monthly
securities purchases from EUR 80 bn. to EUR 60 bn., starting in April 2017.
The planned duration of the securities purchases is until December 2017.
Ultimately it will be progress toward achieving the ECB's inflation target that
will be decisive with respect to the program's duration. Moreover, the ECB
Council has explicitly mentioned the option of increasing the monthly
purchases again in the event of developments that threaten to thwart its
aims. Apart from economic developments, an unintended excessive surge
in bond yields was probably on the ECB Council's mind in this context. We
don't envisage the ECB Council to make use of this option and expect
monthly purchases of EUR 60 bn. until year-end 2017.
This particular announcement had no discernible effect on the bond market,
which may partly have been due to the rise in yields that had already
occurred over preceding weeks, and partly with the announcement that the
purchases would at least continue until the end of the year. Another
decision did have a substantial effect though. From 2017, the ECB will be
able – if necessary – to purchase bonds with a yield-to-maturity below 0.4%. This change triggered a decline in yields on short term German
government debt securities. Yields on the short end of the curve should
remain low, as long as there is a “risk” that the ECB could become active in
this market segment. It is more difficult to forecast yields on bonds with
longer maturities. We expect only minor additional increases in yields in the
first quarter, as a consolidation period seems likely after the significant wave
of selling in recent months. However, the environment for bonds will remain
hostile in the first quarter and beyond. Surging inflation, even if primarily due
to energy prices, relatively strong economic data and likely negative signals
from the US treasury bond market argue in favor of a further rise in yields
over the course of the year. Political risks such as the elections in the
Netherlands and France should be mainly reflected by a temporary surge in
volatility rather than exerting a sustained impact on the market.
ECB measures lower yields on short term German
debt securities
Yield on German 2 year notes, in %
Yields should continue to remain below the
inflation rate and hence at crisis levels
in %
-0.6
4.0
-0.62
3.5
-0.64
3.0
Eurozone debt crisis
2.5
-0.66
Forecast
2.0
-0.68
1.5
-0.7
1.0
-0.72
0.5
0.0
-0.76
-0.5
-0.78
-1.0
0.5 0.8 0.8
Inflation
10y yield
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
-0.74
Page 9
December 2016
US
Federal Funds Rate
US Treasury Notes
0.75 – 1.00 %
2.4 % (10Y)
Only a temporary consolidation in US treasuries expected
The trend in US monetary policy in the coming year is highly uncertain. The
reason for this are continued strong economic data releases and the
associated preliminary indications of a mild increase in inflationary
pressures (see also US Economic Outlook). This is exacerbated by the
economic policies of the new US administration. Mr. Trump's program calls
for a number of economic stimulus measures. At this stage no-one knows
when and how many of those he will be able to implement though. In any
event, the measures will collide with an economy that is at a minimum
already operating close to capacity. As a result, inflation risks are clearly
skewed to the upside next year, but cannot be quantified as yet. We are
currently expecting the Fed to implement four rate hikes in the course of
2017, the first one at the end of the first quarter. Our forecast is based on
the premise that the administration's policy measures should only be
implemented later in the year, and the Fed would probably only respond to
them in 2018 - provided that they result in a strong boost to inflation. We
believe the risks to our interest rate forecast are clearly tilted to the upside
though.
Rising inflationary risks since Donald Trump has been elected president
have already triggered a massive surge in bond yields. We regard this move
rather as a long overdue correction of previous overvaluation. At current
levels, a significant increase in price inflation is not priced in yet. In the
coming quarter we are inclined to expect a consolidation and a sideways
move in the bond market. The environment will remain hostile for bonds
though. The economy and the labor market should deliver a good
performance, which should be stoked further by the new government's
policy measures, even though their extent remains unknown at this stage.
Thus we would regard any consolidation as merely temporary. In the course
of the year, treasuries should weaken further. A significant surge in inflation
- a risk that cannot be dismissed – is not taken into account in our forecast.
Should such a surge indeed happen, the bond market would come under
greater pressure than we currently anticipate.
Change in the treasury yield curve since the election
of Donald Trump
in %
Yields should continue to rise in the course of the
year
in %
4.0
3.0
2.60
2.41
2.5
3.0
2.09
1.62
1.5
1.29
1.0
0.82
Eurozone debt crisis
2.5
1.83
2.0
3.5
1.60
Forecast
2.0
1.5
1.29
1.0
0.98
0.5
0.0
-1.0
0.0
2y
3y
5y
7-Nov-16
7y
10y
0.5 0.8 0.8
Inflation
10y yield
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
-0.5
0.5
15-Dec-16
Page 10
December 2016
CEE Government Bonds
Czech Republic
Hungary
Poland
Romania
 0.67% (10Y)
3.21% (10Y)
 3.40% (10Y)
 2.45% (5Y)
Despite our expectations for increasing inflation, we do not see central
banks as being likely to react too quickly with tightening. Negative real rates
could also be the normal course of business on major markets (US, euro
area), which could make it unnecessary to hike in CEE in the coming
months. As a matter of fact, due to the Hungarian Central Bank’s actions,
there is a risk of a further decrease in short-term interest rates there.
Elsewhere, policy rates (which are better anchors for markets than in
Hungary) could be kept unchanged. As for the Czech Republic, where the
main tool of monetary policy has been the cap on the EURCZK exchange
rate since late-2013, we expect that economic and political uncertainties in
the EU will lead to postponement of the exit until the end of 2017. We
believe that the CNB will prevent the exchange rate from significant
appreciation via a small amount of interventions after the exit and thus
without there being any need to cut rates to negative territory.
Although central banks are less likely to affect yields on the longer end of
the government bond curve, easy monetary policy could still help somewhat
in keeping longer-dated yields from increasing too much. Still, after the
victory of Donald Trump as the next US president, it soon became evident
that our former yield forecasts for CEE for year-end 2016 cannot be
maintained. We increased our forecasts by roughly 20-50 basis points for
the region for end-2016 and for 1Q17 for 10Y bonds. Forecasts for the
longer run, however, depend heavily on global market developments. The
exact policies of Trump and the outcome of the upcoming political minefield
in Europe (with the aftermath of the Italian referendum, and the Dutch,
French and German elections in 2017) will be crucial. The ECB’s move to
cut monthly purchases by EUR 20bn as of April next year took the markets
by surprise a bit, while the decision to abandon the yield floor and allow the
purchase of shorter-dated bonds (as of 1Y) helped the short-end of the
curve in the euro area to decline slightly, while longer-dated yields
advanced, causing yield curves to steepen. As for longer-dated bonds in
CEE, we still think that in many cases the spread widening after the election
of Donald Trump was somewhat overdone (for example in Poland and in
Hungary), which could cause spreads to narrow further. On the other hand,
shorter-dated bonds could benefit from still-dovish monetary policies
(especially in Hungary) and ECB announcements. As for the Czech
Republic, speculative positions of foreign investors could keep shorterdated Czech bonds deeply negative in upcoming quarters too.
Page 11
December 2016
EUR-Corporate Bonds
Investment Grade
High Yield
The ECBs CSPP* has shaped 2016. It
continues in 2017
Spreads over sovereign bonds in basis
points, average remaining term to
maturity: ~ 5 years
190
180
170
160
150
140
130
120
110
100
ECB
announces
CSPP
800
750
700
650
600
550
500
450
400
350
"Brexit" effect
ECB purchases
anticipated
US
presidential
election
New issue
volume rises
China,Oil
price
Investment Grade
2016/12
2016/11
2016/10
2016/09
2016/08
2016/07
2016/06
2016/05
2016/04
2016/03
2016/02
2016/01
ECB purchases start
High Yield (rhs)
Investment grade corporate bonds:
the CSPP is probably already
distorting risk premiums somewhat
Credit spreads in basis points vs.net
debt/EBITDA ratio (median)
2.6x
2.2x 2.4x 2.4x 2.5x
2.2x
2.7x
200
3.0x
160
120
121 bps
80
40
12.12.2016
30.06.2016
2015
2014
2013
2012
2011
2010
2009
Source: Bloomberg, Markit, Erste Group
Research
As of: 12. December 2016
1.8%
5.7%
4.0%
4.8%
4.4%
1.2%
1.3%
2%
2.5%
12 December 2016
3%
3.5%
End of 2015
3.2%
End of 2014
3.8%
4%
End of 2013
4.7%
Yields continue to be at low levels on
a historical basis
Average yields in %, avg. remaining term
to maturity: ~ 5 years
5%
Hybrid bonds with IG ratings continue to exhibit attractive premiums relative
to senior IG bonds. Bloomberg consensus estimates suggest that debt
repayment periods (net debt/EBITDA) are declining for the majority of
issuers in 2017.
0
Total debt / EBITDA (IG, median)
Benchmark spreads in bps (per 12/31), rhs
6%
The surprising announcement of the ECB purchase program for corporate
bonds (CSPP) on 10. March has had a decisive impact on the EUR
corporate bond market in 2016. The program triggered a rally in corporate
bonds already before it started. The ratings of companies were generally
supported by the sustained economic recovery in the euro zone, as well as
favorable (re-) financing costs. In 2016 bonds issued by companies in the
mining and energy sectors delivered a particularly strong performance.
Apart from the CSPP, these benefited from the recovery in commodity
prices. The total return of corporate bonds since the beginning of the year
exceeds that of sovereign bonds and European stocks (as measured by the
Stoxx 600 Index).
We regard bonds in the investment grade segment (IG) as somewhat
expensive by now. Even while the indebtedness of issuers tends to
increase, credit spreads are declining. The CSPP is likely contributing to a
distortion of risk premiums. We anticipate headwinds in 2017: we expect
yields on German Bunds to rise. This could particularly weigh on the
performance of the IG segment, given the already very low interest income
it provides.
Source: Markit, Erste Group Research
“Corporate Sector Purchase Program"
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x


1%
0%
Investment Grade
Hybrid Bonds
High Yield
Source: Markit, Erste Group Research
The major credit metrics of high yield issuers (HY) have on average
improved in recent years. Credit spreads in the HY segment narrowed
significantly as well in 2016, but are not excessively low on a historical
basis. For one thing, HY issuers should continue to benefit from the ongoing
robust economic recovery in the euro area: HY risk premiums tend to
correlate fairly strongly with leading economic indicators. For another thing,
the segment is less vulnerable to rising Bund yields: risk premiums are the
dominant component of returns in this case. Moreover, Moody's expects
default rates to remain stable at low levels over the coming 12 months.
Political developments such as the upcoming elections in several countries
in the European core (NL, FR, GER) or the “Brexit” process are apt to
frequently bring about periods of heightened volatility leading to wider credit
spreads. The extension of the ECB's securities purchase program to yearend 2017 announced on 08. December should prevent a significant rise in
risk premiums though. What is to date not clear is whether the reduction of
the monthly purchases coming into force in April 2017 (from EUR 80 bn. to
EUR 60 bn.) will also involve a reduction in the purchase volume of the
CSPP. The ECB's monetary policy will definitely have a major impact on the
EUR corporate bond market in 2017 as well though.
We generally expect that the performance of corporate bonds will be
significantly weaker in 2017 compared to this year (1.1.-12.12. 2016: IG
+4.4%, HY +9.1%). HY and IG hybrid bonds should deliver stronger total
returns in 2017 than IG senior bonds.
Page 12
December 2016
Currencies
Forecast Q1 2017
US-Dollar
1.06
Limited additional appreciation potential for the US dollar
In the wake of Donald Trump's victory in the US presidential election, the
US dollar has firmed significantly. In conjunction with the Republican
majority in both chambers of Congress, both inflation risks and interest rate
risks have increased. This is because Trump's program includes tax cuts,
which will boost demand, higher tariffs, which would likely be passed on by
importers, as well as the deportation of illegal immigrants, which would lead
to a decrease in the workforce. Since the US has already achieved full
employment, these measures represent a real risk for the pace of inflation
and with that a risk of larger rate hikes by the Fed. It is currently not
possible to gauge to what extent Trump's program will actually be
implemented. As this will probably only be thrown into sharper relief by the
second quarter, both the markets and the Fed can only engage in guessing
games for the time being. In our opinion this is not sufficient grounds for
significant additional dollar appreciation.
Even if the pace of rate hikes in the US were to accelerate in 2017 to some
degree, we would still not expect to see additional dollar strength in the
course of the year. Rather a movement of EURUSD towards the 1.10 level
seems likely for us. The US currency's valuation is already high, and any
significant further appreciation (parity!) would alarm the Fed, which would
then likely respond by reducing the pace of future rate hikes in order to
stave off damage to the US economy. Moreover, we expect the ECB to
pursue a less expansionary monetary policy next year, which will tend to
support the euro. The risks to our forecast are tilted toward greater dollar
upside. Should the program of the new US administration be implemented
to an extent that leads to a significant surge in inflation expectations or
actual inflation rates, both interest rate expectations and the US dollar's
exchange rate would likely increase more strongly than we currently
anticipate.
Current USD strength only temporary
EURUSD exchange rate
1.5
1.4
1.3
Forecast
1.2
1.1
1.06 1.08
1.0
0.9
Jul-17
May-17
Jan-17
Mar-17
Nov-16
Jul-16
Sep-16
May-16
Jan-16
Mar-16
Nov-15
Jul-15
Sep-15
May-15
Jan-15
Mar-15
Nov-14
Jul-14
Sep-14
May-14
Jan-14
Mar-14
0.8
Page 13
December 2016
Forecast Q1 2017
Swiss Franc
1.09 
On December 15 the Swiss National Bank has left its target range for three
month Libor unchanged at -1.25% to -0.25% while the interest rate on sight
deposits with the national bank was kept at -0.75%. According to statement
by the SNB, the Swiss franc continues to be significantly overvalued. The
SNB remains active in foreign exchange markets, while taking the overall
currency situation into account. Negative interest rates and the central
bank's willingness to intervene in the foreign exchange market are intended
to make the Swiss franc less attractive, thereby easing pressure on the
currency.
The SNB has revised its conditional inflation forecast slightly downward
relative to the September forecast. This primarily reflects somewhat lower
than expected inflation readings in October and November. The inflation
forecast for 2016 as a whole nevertheless remains unchanged at -0.4%. In
2017 the SNB expects an inflation rate of 0.1% compared to 0.2%
according to the September forecast. The forecast for 2018 has been
lowered from 0.6% to 0.5%. The forecast is based on the assumption that
three month Libor will remain at -0.75% over the entire forecast horizon.
The State Secretariat for Economic Affairs (SECO) continues to be more
cautious with its inflation projections than the SNB and expects lower price
inflation rates of 0.0% in 2017 and 0.2% in 2018.
The SNB expects that the moderate recovery in the global economy will
continue in 2017. There remain considerable risks though. Structural
problems in a number of developed countries could negatively affect the
economic outlook. In addition, there are political uncertainties, associated in
particular with the future course of US economic policy, upcoming elections
in several euro area member nations and the pending exit negotiations
between Great Britain and the EU. Switzerland's GDP growth in the first
three quarters of 2016 was generally in line with expectations and the SNB
continues to forecast GDP growth of around 1.5% for 2016 as a whole.
According to the SNB, the economic outlook for Switzerland for the coming
year is cautiously optimistic. The central bank expects GDP growth of
around 1.5% in 2017 (SECO: 1.8%).
Fundamental factors currently indicate a moderate easing of appreciation
pressure on the Swiss franc. Uncertainties in global financial markets
nevertheless remain too pronounced at the moment to expect a safe haven
currency such as the Swiss franc to weaken significantly. The SNB
consistently stresses that it “...will remain active in foreign exchange
markets as necessary”, and we expect the SNB to intervene in foreign
exchange markets should strong appreciation pressures emerge (on
occasion of a press conference on December 15, this was once again
affirmed by SNB chairman Thomas Jordan as well). It cannot be assumed
though that the central bank will keep the exchange rate at a specific level
with its interventions. In our assessment EURCHF should fluctuate in a
range between 1.08 and 1.09 in coming months. Over the coming year we
are forecasting a slight depreciation in the Swiss franc to around 1.12 Swiss
francs per euro by Q4 2017. However, a minimum exchange rate is no
longer enforced. Should certain risks materialize (e.g. geopolitical conflicts,
turmoil in the EU), the Swiss franc could once again appreciate rapidly and
strongly.
Page 14
December 2016
Forecast Q1 2017
Gold in USD
Demand declines in Q3 –
gold's attractiveness relative
to other asset classes has
diminished
1.120 – 1.200
The price of gold declined by 11% in USD terms in the fourth quarter.
Since the beginning of the year, gold has generated a return of 10% in USD
terms.
The gold price has been mired in a downtrend since the middle of the year.
An important reason for this were rising government bond yields in most
developed markets. In Europe yields on many bond maturities that were still
negative in mid-year have moved back into positive territory in the
meantime.
Another factor that is weighing on the gold price is the positive performance
of most stock markets. For example, the US benchmark indexes are trading
at or close to all time highs. That diminishes the attractiveness of gold
relative to stocks in the perception of many market participants.
The World Gold Council has reported that demand for bullion has declined
by 10% in the third quarter compared to the same quarter of the previous
year. The high gold price is cited as a reason for this decline in demand.
Particularly gold sales to the jewelry industry were under pressure. Only
investment demand caused by the creation of additional baskets of shares
in gold ETFs has increased.
Gold in USD
Outlook
Due to the surge in bond yields and the relative attractiveness of
stocks, demand for gold should continue to decrease in coming
months. We therefore expect a slightly weaker price trend in the first
quarter in a trading range from approx. USD 1,120 to 1,200.
Page 15
December 2016
Stocks
Forecast Q1 2017
Global
FTSE World consensus expectations
Earnings and sales growth (y/y, %)
FTSE Indices
North America
Europe
Asia
EM Asia
EM LatAm
EM Europe
World
Source: Datastream
Sales
16e 17e
2.3
5.5
-0.2
5.6
-2.7
3.6
5.2 10.5
4.9
6.9
-0.5 12.0
0.3
5.1
EPS
16e 17e
2.1 12.1
-1.6 13.8
6.6 10.6
8.3 15.0
30.6 17.5
13.9 10.0
2.1 12.1
FTSE World sectors
Earnings growth estimates (y/y, %)
 0% to +5%
The FTSE World Index rose by 3.5% in EUR terms in the fourth quarter
and is now trading only slightly below the all-time high of April 2015.
US stocks delivered the best performance in Q4 with a +5.8% gain, followed
by Asia with +4.9%, while European stocks suffered a decline of -2.6%. The
commodity, banking and energy sectors performed best, posting gains in
excess of 10%. This year's weakness in defensive consumer staples
continued, with the sector losing approx. -4%.
Earnings and sales growth 2016 & 2017
The outlook for corporate sales and earnings growth on the global level
remains positive. According to consensus estimates, the companies in the
FTSE World Index will post sales growth of +0.3%. Excluding banks and the
oil & gas sector, the expected increase amounts to a solid +2.3%. Sales
growth of +5.1% is forecast for the coming year.
Expected global earnings growth currently amounts to +2.1% in 2016 and
+12% in 2017. If one excludes the volatile earnings of banks and energy
companies from the calculation, earnings growth amounts to 8.3% This
increase is roughly equivalent to the 7.9% gain of the FTSE World Index
this year.
Valuations remain close to the historical average
The forward P/E ratio of the FTSE World Index for 2017 amounts to 16.0x.
Valuations are therefore close to the long term average of 16.1x. The
valuation differential between Europe (14x) and the US (17.6x) continues to
persist and is justified by weaker earnings momentum in Europe over the
long term.
Source: Datastream
Stocks are benefiting from low yields on government bonds
An important driver of the global stock market is the level of government
bond yields compared to dividend yields. Low bond yields (1.8% on 5 yr. US
treasuries, -0.4% on German BOBLs) compare to a 2.2% dividend yield on
the global stock market index. This underscores the attractiveness of stocks
relative to government bonds.
Technical outlook is positive
The S&P 500 Index has attained a new all-time high of 2,271 points in
December 2016. Our quantitative price and volume analysis shows that the
long term uptrend from 2009 remains intact.
Outlook
We expect the global stock index to post a moderate gain in the first
quarter of 2017 ranging from 0% to 5%. Earnings growth prospects for
the global stock market are positive, which applies particularly to the US.
Due to the decline in earnings in 2016, the outlook for European stocks is
currently not as favorable as that for US stocks. Due to their stronger
earnings growth momentum, emerging markets are likely to outperform
developed markets, amid higher volatility.
Page 16
December 2016
Global Sectors (1)
Outlook:
PE 17e

EPS 17e
Outlook:
PE 17e
146.1%

EPS 17e
Outlook:
PE 17e


EPS 17e
0 to +5%
16.2x
13.5%

EPS 17e
Outlook:
PE 17e
0 to +5%
16.2x
44.5%
EPS 17e
Outlook:
PE 17e
0 to +5%
15.2x
7.5%
EPS 17e
Outlook:
PE 17e
0 to +5%
23.2x
0 to +5%
17.3x
10.2%

0 to +5%
9x
8%
Oil & Gas
The decision by OPEC and the most important non-OPEC producer
countries to reduce daily oil output is the most important fundamental
change in the oil market since 2014. Consensus estimates of the sales and
earnings prospects of companies in the sector were raised in recent
months. Currently sales are expected to rise by 21.5% in 2017 and earnings
are expected to grow by 146% from a very low base. We expect stocks in
this sector to exhibit a moderately positive trend in the first quarter of 2017.
Chemical Sector
Rising oil prices increase input costs for chemical companies and tend to
weigh on their earnings. Thus, while the earnings and sales outlook for the
sector remains positive, it is below that of the broad market. The consensus
expects sales growth of 4.7% in 2017. Earnings are estimated to grow by
7.5% in 2017. Stocks in this sector have a high dividend yield of 2.7% we
expect the sector to post a gain near the lower end of a 0% to 5% range in
the first quarter.
Commodity Producers
The commodities sector exhibited an above average performance in the
fourth quarter, posting a gain of approx. 16%. Its year-to-date gain amounts
to +58%. Consensus estimates for sales and earnings growth continued to
be raised significantly in recent months. In 2017 sales are expected to grow
by 5.9% and earnings by 44.5%. In view of this strong earnings revisions
momentum it appears likely that the sector will once again rally in the first
quarter. We expect a gain ranging from 0% to +5%.
Construction & Construction Materials
This sector has outperformed the World Stock Index year-to-date with a
gain of 13%. The rise in bond yields in developed markets over recent
months has dampened the momentum of the sector index though.
Consensus estimates for sales growth stand at +2.5% in 2016 and +3.5% in
2017. In 2017 earnings growth of 13.5% is forecast. The sector index
should exhibit a moderately positive performance in the first quarter. We
expect a gain near the lower end of a range from 0% to +5%.
Industrial Goods & Services
According to consensus estimates this sector should see a moderate
decline in sales of -0.7% this year. Estimated earnings growth in 2016
amounts to +13.5%, followed by earnings growth of +10.2% in the coming
year. We expect the hitherto positive trend to continue in the first quarter
and anticipate a sector performance in a range from 0% to 5%.
Car Makers & Suppliers
This sector is likely to exhibit stagnating sales (-0.3%) in 2016. Both belowaverage sales growth (+2.9%) and below-average earnings growth (+8%)
are expected in the coming year. The dividend yield of shares in this sector
amounts to 3.1%. We expect the sector to post a gain in the first quarter in a
range of approx. 0% to +5%.
Page 17
December 2016
Global Sectors (2)
Outlook:
PE 17e

EPS 17e
Outlook:
PE 17e
11.1%

EPS 17e
Outlook:
PE 17e


EPS 17e
0 to +5%
20.1x
12.4%

EPS 17e
Outlook:
PE 17e
0 to +5%
14.7x
8.5%
EPS 17e
Outlook:
PE 17e
0 to -5%
17.2x
12.6%
EPS 17e
Outlook:
PE 17e
0 to -5%
19.3x
0 to +5%
18.5x
6.8%

0 to +5%
17.5x
8.3%
Food & Beverages
After sales de facto stagnated in 2016 (+0.2%) and earnings only rose
slightly, the situation should slowly improve in 2017. The consensus expects
sales to increase by 3.6% in 2017, coupled with earnings growth of 11.1%.
Stocks in this sector traditionally tend to be regarded as growth stocks.
These are exhibiting a below-average performance in the current market
rally. The usually higher risk tolerance of investors at the beginning of the
year suggests that this sector should be underweighted in the first quarter.
Household Appliances and Personal Care Products
Companies in this sector are categorized as non-cyclical growth companies.
Expected sales and earnings growth rates tends to stable and slightly
exceed those of the World Stock Index. The consensus is calling for
earnings growth of 12.5% in 2017. The sector's performance in the first
quarter usually tends to be below average. Investors currently prefer cyclical
sectors. We expect a negative performance in a range from -5% to 0%.
Health Care and Pharmaceuticals
Consensus estimates for revenue growth in the sector currently amount to
7.4% for 2016. Expected earnings growth for this year stands at 6.9%. With
a gain of +8.5%, earnings should rise faster in 2017 than sales (2017e:
+6.9%). Earnings revisions were recently in a mild downward trend. Stocks
in this sector are comparatively defensive and should exhibit a weaker
performance in the first quarter than the broad market, but still generate
mildly positive returns. We expect the sector to post a gain near the lower
end of a range from 0% to +5%.
Retailers
According to consensus estimates, expected sales growth in 2016 amounts
to +6.0%, while expected earnings growth of +7.2% is above average. In
2017 both revenue growth (2017e: +5.4%) and earnings growth (2017e:
+12.4%) should once again be positive. We expect a performance in a
range from 0% to +5% in the first quarter.
Media
Consensus forecasts are calling for earnings growth of +11.2% in 2016. In
2017 earnings growth momentum is expected to weaken to a gain of +6.8%.
Sales are forecast to grow by 8.3% in 2016 and 3.7% in 2017. Expected
revenue growth momentum is below average compared to other sectors.
Consequently we expect the sector to post a gain near the lower end of a
range from 0% to 5% in the first quarter.
Travel and Leisure
This sector underperformed in 2016. Important reasons for this were on the
one hand a comparatively high valuation (2016 forward P/E ratio: 18.9x)
and very low sales growth (2016e: +0.1%). In 2017 stronger sales growth is
expected (+4.8%). Earnings should rise by 8.3%. The expected sales
growth rate is below the average of the broad market, and the same applies
to expected earnings growth. We therefore expect the sector's performance
in the first quarter to come in at the lower end of a 0% to 5% range.
Page 18
December 2016
Global Sectors (3)
Outlook:
PE 17e

EPS 17e
Outlook:
PE 17e
12.5%

EPS 17e
Outlook:
PE 17e

EPS 17e
0 to -5%
14x
4.5%

EPS 17e
Outlook:
PE 17e
0 to -5%
14.7x
1.3%
EPS 17e
Outlook:
PE 17e
0 to +5%
16x
0 to +5%
11.7x
8.1%

0 to +5%
13.4x
9.1%
Technology
From a fundamental perspective, technology companies should perform
better in 2017 than in 2016. This year was characterized by weakness in
Apple, the company with the largest market capitalization in the technology
sector. Consensus estimates for 2017 are calling for sales growth of 5.5% in
the sector (2016e: +2.2%) and earnings growth of 12.5% (2016e: 0.4%). We
expect the sector to rally in the first quarter and are forecasting a gain in a
range of 0% to 5%.
Utilities
The long-term prospects of this sector are negative. According to
consensus estimates, revenues will only rise by 1.8% in 2017, after likely
declining by 0.6% in 2016. Consensus estimates for earnings growth in
2017 were revised downward in recent months and currently stand at 1.3%.
Moreover, rising yields are putting pressure on these in most cases highly
indebted companies. We expect a negative performance in a range of -5%
to 0% in the first quarter.
Telecoms
This sector should post below-average revenue growth in 2017 (+2.1%).
Expected earnings growth of +4.5% is low as well. The current environment
of rising policy rates and bond yields is weighing on the cost situation of
companies in the sector. In the current market environment, in which
cyclical stocks are outperforming, this sector's performance should be
worse than that of the overall market. We expect a decline in the sector
index in the first quarter ranging from -5% to 0%.
Banks
In 2016 the consensus expects revenues to decrease by -3.2% and
earnings by -6.8%. The forecast for 2017 is indicating revenue growth of
2.5% and earnings growth of 8.1%. Both growth rates are below the
average of the World Stock Index. The rise in bond yields in recent months
has supported the sector. The planned reduction in regulations in the US is
a positive factor which argues in favor of US bank stocks. The recent
outperformance of the sector should continue in the first quarter. We
therefore expect it to post a gain in a range from 0% to +5%.
Insurance Companies
In recent months there has been a significant upward revision in consensus
estimates of the sector's earnings growth. According to the revised
estimates, earnings are going to grow by 9.1% in 2017. Revenues are
expected to increase by 1.1%. Particularly life insurance companies are
currently benefiting from the surge in bond yields in the most important
developed markets. We expect to see a moderately positive performance in
the first quarter ranging from 0% to 5%.
Page 19
December 2016
Forecast Q1 2017
 0% to +5%
Europe
FTSE Europe consensus estimates
Earnings and sales growth (y/y, %)
FTSE Indices
UK
Switzerland
France
Germany
Spain
Europe
Sales
16e 17e
-1,8
8,8
0,0
2,8
-1,8
5,8
-0,1
3,8
-0,3
4,6
-0,2
5,6
EPS
16e 17e
-4,3 18,9
-1,6 8,7
0,3 8,2
3,8 11,2
-10,2 21,7
-1,6 13,8
Source: Datastream
The FTSE Europe gained 5.2% in EUR terms in Q4. Since the beginning
of the year, it has generated a return of -3.3% including dividends.
European stock indexes are the only global regional indexes exhibiting a
negative performance in 2016 to date. In the US a gain of 3.5% was
achieved, Japan advanced by 4.1% and the Emerging Markets Index by
13.8%. Among the regions posting negative returns, Switzerland stood out
with a -6.8% loss.
Consensus estimates are calling for a 1.6% decline in earnings for
companies in the FTSE Europe. Particularly banks (-18%) and energy
companies are contributing to the earnings slump. Excluding these two
sectors, earnings in Europe grew by a respectable 4.8%. Earnings for the
FTSE Europe as a whole are estimated to grow by 13.8% next year.
Excluding the volatile banking and energy sectors, expected 2017 earnings
growth amounts to 10%. Corporate sales have stagnated in 2016 (excl.
banks and energy companies: +3.4%), while sales are expected to increase
by 5.6% next year.
The price to book ratio in Europe currently stands at 1.6x, with a return
on equity of 7.7%. US companies are generating a return on equity of
12.4%. The valuation of the FTSE Europe based on the 2017 forward P/E
ratio is 14.0x. This year the P/E ratio stands at 15.9x. The 2016 dividend
yield amounts to 3.8%, which is significantly above the global average of
2.2%.
Outlook
We expect the FTSE Europe to post a gain between 0% and 5% in the
first quarter of 2017. Particularly the increase in commodity and energy
prices should continue to support stocks in these sectors. Moreover,
earnings estimates for financial stocks have begun to stabilize since Q2,
after a long-lasting downtrend. Earnings developments in the financial
sector (banks insurance companies, real estate) remain decisive in
determining the trend of the European stock market, given the sector's 22%
index weighting.
Earnings estimates for selected sectors in the
FTSE Europe over the past 12 months
Profitability vs. valuation
European sectors
Page 20
December 2016
Forecast Q1 2017
USA
0% to +5% 
The FTSE US posted a gain of 2.3% in EUR terms in the third quarter.
The S&P 500 Index firmed by 1.9%, while the Nasdaq Composite Index
rallied by 8.1% in EUR terms. US stock market indexes continue to exhibit
relative strength compared to European benchmark indexes.
Economic sentiment indicators are painting a positive picture. The
purchasing managers index for the manufacturing sector has recovered
again. The ISM manufacturing index currently stands at 51.5 points and
indicates a moderate economic expansion. The difference between new
orders and inventories remains in positive territory. The ISM nonmanufacturing index has declined, and currently stands at 51.4 points. Thus
the services sector is still expanding, albeit at a much slower pace than in
previous months.
US manufacturing sector, new orders minus inventories compared to
the 1 year momentum of the FTSE World Index
Sources: Datastream, Erste Group Research
According to consensus forecasts, corporate earnings will grow by 1% this
year and by 12.8% next year. Low earnings growth this year is largely due
to the strong decline in earnings in the energy sector. Corporate revenue
growth remains positive. Top-line growth is expected to amount to 1.8% this
year and 6.1% in 2017. We regard it as positive that consensus estimates of
corporate revenue growth have remained stable in recent months.
The valuation of US benchmark indexes has changed only slightly in
the last quarter. In light of the low level of interest rates and expected
earnings growth, valuation levels remain fair. Thus, the current dividend
yield of the S&P 500 index amounts to 2.1%, while the FTSE US has a
2016e forward dividend yield of 1.7%. 10 year treasury notes currently yield
only 1.6%.
Outlook:
We are forecasting a moderately positive performance for the S&P 500
Index in the fourth quarter. US benchmark indexes should continue to be
less volatile than European ones. We expect the index to post a gain in a
range from 0% to 5%.
Page 21
December 2016
Forecast Q1 2017
CEE
 0% to +5%
Politics remains a dominant topic for emerging Europe. Contrary to previous
occasions, we are currently actually referring to global events. At this stage,
only Turkey still has a political profile that is garish enough to still be noticed
over the noise of this global events circus.
The surprising result of the US presidential election has undoubtedly cast a
pall over emerging markets as well, as can be easily deduced from negative
portfolio flows. Since November 9, we have observed USD 6.5 bn. in stock
market investment outflows (preliminary estimate for 8 important emerging
markets in total).
Those of Trump's election promises that currently look like they have the
highest probability of surviving, namely tax cuts and deficit spending,
essentially result in a stronger US dollar and rising interest rates. Both are
themes that have historically not had a positive effect on emerging markets.
For emerging Europe, the effects should be rather limited though, since the
region should benefit from euro weakness due to its strong focus on
exports. Moreover, rising interest rates are primarily seen as a risk for
markets with large external deficits. In our region that would mainly concern
Turkey. In addition, the divergence in the monetary policies of Fed and ECB
should ensure that rising interest rates are not our problem just yet.
The mooted cut in oil production will affect the CEE region primarily
because Russia will be a beneficiary. Conversely, Turkey is taking a hit, as
it must cover nearly 100% of its energy needs through imports and thus is
now facing a double whammy of higher oil prices and rising interest rates.
Polish banks are suffering from an even weaker zloty relative to the Swiss
franc, as well as rumors that potentially weaker GDP growth could
reawaken desires to impose a higher bank levy.
In emerging Europe, “reflation trades” are certainly having an impact as
well, and have triggered sector rotation. Expectations of rising inflation as
an expression of growth and the associated surge in interest rates have
provided a massive boost to market sectors with cyclical characteristics,
while sectors that lack such characteristics have come under pressure
commensurately. Essentially banks and insurance companies, as well as
energy and basic resources stocks have benefited. Real estate stocks were
among the losers.
Since particularly banks that sport very favorable valuations can be still be
found in our region, this theme should continue to be a market driver.
Stocks in the basic resources sector have seen massive price increases,
particularly in Poland – the local sub-index has gained 80% year-to-date.
Given that cyclical stocks are already exhibiting massive outperformance,
we believe one should not neglect weaker sectors entirely, particularly
commercial real estate, as well as dividend stocks.
Page 22
December 2016
Forecast Q1 2017
India
India: IFO Indexes
 0% to +5%
The FTSE India Index declined by 4.5% in EUR terms in the fourth
quarter. Its year-to-date performance in EUR terms amounts to 1.7%.
According to the Indian IFO Index, India's economic situation continues to
look quite positive. Both the current situation and the expectations
component remained stable in positive territory in Q4.
Source: Datastream
Consensus estimates for sales and earnings growth for the FTSE India are
very positive. Corporate sales are expected to increase by 9.3% in 2016,
followed by 13.7% in 2017. Growth in earnings per share is expected to be
even stronger. Earnings growth of 23.3% is anticipated in 2016, followed by
22.7% in 2017. The fact that these forecasts have remained quite stable in
recent quarters is a positive sign.
The forward P/E ratio stands at 18.0x for 2016, and 14.7x for the coming
year. The 2016 forward dividend yield amounts to 1.7%. India's higher
valuation metrics compared to other emerging markets reflect above
average growth momentum and a strong return on equity of 14.7%.
Outlook:
We expect a positive performance of India's stock market in Q1 2017.
The FTSE India Index should increase from 0 to +5%.
Forecast Q1 2017
China | Hong Kong
China: IFO Indexes
 0% to +5%
th
The FTSE China Index rose by 3.2% in EUR terms in the 4 quarter.
Year-to-date, its performance in EUR terms amounts to 7.6%. With that, all
benchmark indexes in the BRIC nations have posted positive returns since
the beginning of the year.
According to the IFO Index, China's current economic situation continues to
be assessed as negative. The indicator is consistently improving though.
The expectations component is far more volatile and is currently slightly in
negative territory.
Source: Datastream
Expected earnings growth for the FTSE China amounts to 7,9% in 2016 and
16.5% in 2017. According to consensus estimates, companies should also
be able to post significant sales growth. The respective estimates are calling
for an sales increase of 8% in 2016 followed by 13% in 2017. The forward
P/E ratio stands at 18.7x in 2016 and 16x in 2017. The 2016 forward
dividend yield amounts to 1.7%
Outlook:
In Q1 2017 we expect China's benchmark indexes to post further
gains. We are forecasting a moderate rally in the FTSE China, ranging from
0% to +5%.
Page 23
December 2016
Forecast Q1 2017
Brazil
Brazilian real vs. USD:
Significant appreciation in 2016
BRL/USD:
 0% to +5%
The FTSE Brazil rallied by 4% in EUR terms in the fourth quarter. Its
year-to-date gain thus increased to 61%. Due to the surge in the index
combined with a stronger real, the FTSE Brazil Index is exhibiting the
strongest performance among the BRIC nations in EUR terms.
A very important factor supporting this trend is the expectation that Brazil's
economy will recover in the coming year. Commodity prices are important
for Brazil and have rallied, a trend that seems set to continue over the
medium term. Cyclical stocks tend to have better prospects under these
circumstances than growth stocks.
The earnings outlook for companies is positive. According to consensus
estimates, expected earnings growth for the FTSE Brazil stands at +17.7%
in 2017. Corporate sales are seen to rise by 6.3%. In light of these positive
growth prospects, the valuation of the Brazilian benchmark index appears
moderate. The dividend yield amounts to 3.2% and the 2017 forward P/E
ratio stands at 13.7x.
We expect the FTSE Brazil to continue to advance in the first quarter. Our
forecast calls for a performance in a range of 0% to +5%.
Forecast Q1 2017
Russia
 0% to +5%
The FTSE Russia rose by 19% in EUR terms in the fourth quarter. Its
year-to-date gain amounts to 48%. Stronger oil prices and the expected
economic recovery in 2017 are the most important drivers of the upswing in
the stock market.
Russia RTS Index and the oil
price:
Consensus estimates for earnings growth in 2017 are positive.
Earnings are expected to grow by 9.4%. Sales forecasts for 2016 were
revised upward in recent weeks and are only slightly negative by now (1.1%). By contrast, corporate sales are expected to surge by 12.4% in
2017.
In view of strong expected earnings growth, the valuation of listed Russian
companies remains very low. The forward dividend yield amounts to 4.2%,
the 2017 forward P/E ratio stands at 6.3x.
It appears likely that the FSTE Russia will continue to rally in view of the
comparatively strong prospects for Russian companies. We expect the
index to post a gain in a range from 0% to +5% in the first quarter.
Page 24
December 2016
Tables & Appendix
Economic indicators
Eastern Europe
Europe
GDP
(% yoy)
Americas
Unemploy.
(%)
CA
Balance
(% GDP)
Fiscal
Balance
(% GDP)
Gross
Debt
(% GDP)
16e
17e
18e
17e
18e
17e
18e
17e
18e
17e
18e
17e
18e
Eurozone
1.7
1.9
1.7
1.3
1.4
9.7
9.3
3.1
2.9
-1.7 -1.4
91.0
89.8
Germany
1.7
2.0
1.9
1.5
1.7
4.5
4.6
8.1
7.7
0.2
65.9
63.6
France
1.3
1.6
1.5
1.0
1.1
9.6
9.3
-3.0 -2.7
97.8
97.9
Spain
3.1
2.2
1.9
1.0
1.1 18.0 17.0
1.7
1.7
-3.1 -2.7
100.2 100.0
Italy
0.8
1.7
1.8
0.5
0.8 11.2 10.8
1.9
1.5
-2.2 -1.3
133.4 132.0
Austria
1.4
1.5
1.5
1.6
1.8
6.3
6.1
2.6
2.6
-1.2 -0.9
80.9
78.6
UK
1.8
1.1
1.7
2.5
2.6
5.2
5.4
-4.3 -3.9
-2.7 -2.2
88.8
88.6
Switzerland
1.5
1.8
1.9
0.1
0.5
3.2
3.1
9.0
8.9
-0.3 -0.2
43.7
42.6
Russia
-0.8
1.1
1.2
5.0
4.5
5.9
5.5
3.5
3.9
-1.5 -0.8
17.9
18.6
Poland
2.4
3.0
3.4
0.9
1.4
8.7
8.5
-0.6 -0.9
-3.0 -2.9
52.4
52.1
Turkey
3.3
3.0
3.2
8.2
6.8 10.2 10.0
-5.6 -5.6
-1.6 -1.5
30.8
30.1
Czech Rep.
2.6
2.6
3.0
2.0
1.9
4.3
4.2
1.1
0.2 -0.2
36.0
36.4
Romania
4.5
3.2
3.3
1.2
2.0
6.8
6.7
-2.5 -2.7
-3.0 -3.0
41.8
42.3
Hungary
2.1
3.4
2.8
1.9
3.0
4.5
4.5
4.6
4.5
-2.7 -2.5
74.0
72.5
Slovakia
3.3
3.1
3.7
0.7
2.0
9.2
8.3
1.2
2.3
-1.5 -1.2
52.7
51.8
USA
1.6
2.2
2.2
2.0
2.3
4.8
4.7
-2.7 -2.8
-3.7 -3.3
7.1
Canada
Asia
Inflation
(% yoy)
-0.4 -0.3
1.4
0.1
108.4 107.9
1.2
1.9
1.9
2.1
2.1
6.9
-3.1 -2.8
-2.3 -2.0
90.5
88.7
Brazil
-3.3
0.5
1.5
5.4
4.8 11.5 11.1
-1.3 -1.5
-9 -8.0
82.4
85.2
Chile
1.7
2.0
2.7
3.0
3.0
7.6
7.2
-2.4 -2.6
-2.9 -2.0
23.3
25.0
Mexico
2.1
2.3
2.6
3.3
3.0
3.9
3.8
-2.8 -3.0
-3.0 -2.5
56.1
55.8
Argentina
-1.8
2.7
2.8
23.2
19.0
8.5
8.3
-3.2 -3.6
-7.4 -6.6
50.7
51.2
Colombia
2.2
2.7
3.8
4.1
3.0
9.6
9.0
-4.2 -3.9
-2.1 -1.6
47.0
45.7
China
6.6
6.2
6.0
2.3
2.4
4.1
4.1
1.6
1.4
-3.3 -3.0
49.9
52.6
Japan
0.5
0.6
0.5
0.5
0.6
3.2
3.2
3.3
3.3
-5.1 -4.4
India
7.6
7.6
7.7
5.2
5.3
na
na
-2.0 -2.2
-6.6 -6.2
67.2
65.6
Indonesia
4.9
5.3
5.5
4.2
4.4
5.7
5.6
-2.3 -2.4
-2.6 -2.8
28.2
29.2
South Korea
2.7
3.0
3.1
1.9
2.0
3.3
3.3
5.9
5.6
1.6
39.2
38.8
Thailand
3.2
3.3
3.1
1.6
1.9
0.7
0.7
7.7
5.9
-0.4 -0.5
44.3
45.1
Australia
2.9
2.7
2.9
2.1
2.4
5.7
5.6
-3.9 -4.1
-2.5 -1.7
43.2
43.5
South Africa
0.1
0.8
1.6
6.0
5.5 27.0 27.4
-3.2 -3.5
-3.9 -3.7
53.3
54.6
World
3.1
3.4
3.6
1.1
253.0 254.9
Source: IMF, EU Commission, Erste Group Research estimates
Page 25
December 2016
Forecasts1
GDP
2014
2015
2016
2017
2018
Eurozone
1.2
2.0
1.7
1.9
1.7
US
2.4
2.4
1.6
2.1
2.2
Inflation
2014
2015
2016
2017
2018
Eurozone
0.5
0.1
0.2
1.3
1.4
US
1.6
0.1
1.2
2.0
2.3
Mar-17
Jun-17
Sep-17
Dec-17
EURUSD
current
1.04
1.06
1.08
1.10
1.12
EURCHF
1.07
1.09
1.1
1.11
1.12
Dec-17
Mar-17
Jun-17
Sep-17
ECB MRR
0.00
0.00
0.00
0.00
0.00
3M Euribor
-0.31
-0.30
-0.30
-0.30
-0.30
Germany Govt. 10Y
0.31
0.50
0.80
0.80
1.00
Swap 10Y
0.74
0.80
1.10
1.10
1.30
current
Mar-17
Jun-17
Sep-17
Dec-17
Fed Funds Target Rate*
current
0.41
0.88
1.13
1.38
1.63
3M Libor
0.97
1.19
1.44
1.70
2.00
US Govt. 10Y
2.58
2.40
2.60
2.70
2.80
EURUSD
1.04
1.06
1.08
1.10
1.12
*Mid of target range
Mar-17
Jun-17
Sep-17
Dec-17
Austria 10Y
0.56
0.70
1.00
1.00
1.20
Spread AT - DE
0.25
0.20
0.20
0.20
0.20
current
1
By regulations we are obliged to issue the following statement: Forecasts are no reliable
indicator for future performance
Page 26
December 2016
ICB Sectors
Emerging Markets
Advanced Markets
Consensus estimates
FTSE Index
World
USA
Europe
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Netherlands
Norway
Portugal
Spain
Sweden
Switzerland
United Kingdom
Pacific
Japan
Hong Kong
Singapore
Australia
Korea
Emerging Markets
EM Asia
China
India
Indonesia
Malaysia
Taiwan
Thailand
EM Europe
Poland
Russia
Turkey
EM Latin America
Brazil
Chile
Colombia
Mexico
Peru
Sectors
Oil & Gas
Chemicals
Basic Resources
Construction & Mat.
Industrials
Automobiles & Parts
Food & Beverage
Pers. & HH Goods
Health Care
Retail
Media
Travel & Leisure
Telecom
Utilities
Banks
Insurance
Technology
World
MarketMarket
Cap. Cap.
( (bn EUR)
Weight
(%)
World
33,079
18,539
7,053
23
140
181
115
1,049
1,001
14
22
230
342
70
17
332
318
974
2,131
5,710
2,991
443
154
873
536
3,071.9
1,994.8
814
364
85
112
454
116
267
39
159
37
487
281
43
17
135
10
100.0
56.0
21.3
0.1
0.4
0.5
0.3
3.2
3.0
0.0
0.1
0.7
1.0
0.2
0.1
1.0
1.0
2.9
6.4
17.3
9.0
1.3
0.5
2.6
1.6
9.3
6.0
2.5
1.1
0.3
0.3
1.4
0.4
0.8
0.1
0.5
0.1
1.5
0.9
0.1
0.1
0.4
0.0
1M
6.2
9.2
2.5
3.9
-2.8
-1.0
1.2
2.3
0.9
12.7
3.2
4.1
0.1
6.0
-1.7
-3.3
4.6
0.9
6.0
3.0
2.5
1.5
7.2
6.8
2.3
-0.2
1.4
4.6
-3.2
-5.1
-3.9
2.6
2.2
5.7
-2.9
13.8
-11.7
-6.0
-7.1
-0.5
0.1
-6.8
5.5
2,275
974
630
439
3,910
876
1,458
2,038
3,531
1,909
935
837
1,066
1,047
3,367
1,625
3,860
33,079
6.9
2.9
1.9
1.3
11.8
2.6
4.4
6.2
10.7
5.8
2.8
2.5
3.2
3.2
10.2
4.9
11.7
100.0
4.1
10.0
3.7
-2.4
2.3
6.2
4.6
5.2
-1.8
13.4
15.0
10.3
2.7
2.2
17.0
4.1
36.5
6.2
Tot. Return
in EUR (%)
3M
6M 12M
3.5
8.3
3.0
5.8 10.1
6.7
-2.6 -0.1 -8.0
8.4 15.7
3.9
-8.9 -7.9 -11.3
-12.4 -17.6 -17.8
-4.5
1.3 -9.0
0.4
2.2 -3.7
-2.3
2.7 -5.7
8.4 -8.5 -18.4
-5.3 -14.6 -19.9
-0.6 -3.3 -21.7
-5.4 -1.0 -2.7
8.6 10.1
3.5
-5.2 -1.6
0.9
-2.7 -1.7 -13.3
-0.1
2.5 -5.4
-4.4 -2.4 -8.6
-2.1
1.5 -8.3
4.9 12.9
4.2
6.3 12.5
0.8
2.2 12.9
5.4
6.2
8.7
4.3
7.1 15.3 10.3
-1.2 11.3
4.3
0.3 12.8
7.4
1.0 13.1
5.2
3.2 17.7
1.7
-4.5
4.1
0.9
-1.6 15.6 18.7
-6.1 -1.3 -5.3
6.5 20.5 16.7
-1.5
9.2 12.7
6.1 13.1 11.8
-0.7
2.2 -7.3
15.3 30.6 29.8
-16.1 -15.7 -20.1
-3.1 16.0 19.5
-0.4 32.0 47.9
5.6 13.4 18.4
-4.6
7.2 25.2
-10.5 -6.3 -16.6
-3.0 15.1 63.2
11.4
3.8
15.8
0.5
6.6
3.7
-6.5
-3.6
-3.1
1.4
2.4
6.2
-3.8
-3.6
14.4
8.7
3.4
3.5
17.1
11.0
34.9
6.9
13.5
9.3
-2.9
2.8
-3.5
4.9
3.5
7.2
-1.0
-0.5
19.1
10.1
13.5
8.3
13.7
2.3
47.0
7.3
9.6
-7.1
-2.9
2.0
-7.6
-0.6
-2.3
0.9
-0.8
4.4
3.9
3.2
5.9
3.0
YTD
7.9
11.4
-3.3
7.7
-8.4
-17.1
-5.6
1.4
-2.0
-19.0
-18.1
-17.5
1.8
15.0
-2.2
-5.9
-0.3
-6.8
-1.9
8.1
4.5
9.9
7.4
13.1
9.4
13.8
9.8
7.6
1.7
21.0
-2.3
22.4
24.4
22.3
-5.9
46.2
-11.4
28.9
62.2
19.9
20.9
-9.7
80.1
26.5
7.8
58.4
13.0
15.7
-3.1
-0.3
6.0
-5.9
3.1
5.2
3.0
2.7
5.7
9.7
7.8
11.9
7.9
Tot. Return
local (%)
1M
3M
YTD
3.5
1.0
6.5
4.7
1.0
9.3
0.4 -2.5
1.1
3.9
8.4
7.7
-2.8 -8.9
-8.4
-1.0 -12.4
-17.3
1.2 -4.5
-5.6
2.3
0.4
1.4
0.9 -2.3
-2.0
12.7
8.4
-19.0
3.2 -5.3
-18.1
4.1 -0.6
-17.5
0.1 -5.4
1.8
4.6
4.8
7.4
-1.7 -5.2
-2.2
-3.3 -2.7
-5.9
3.7
2.3
6.8
0.9 -5.8
-7.6
-1.1 -1.7
12.1
5.0
6.0
2.5
8.4 11.0
-3.0
-2.7 -2.4
7.9
5.6
6.0
5.6
5.4
3.7
8.4
0.0 -0.9
7.3
-1.8 -2.1
11.0
-1.5 -2.1
7.9
0.3 -1.5
5.7
-5.2 -6.9
2.9
-5.8 -4.1
16.5
-2.1 -2.3
-0.6
-0.6
2.4
16.7
-0.4 -3.2
20.8
5.1
5.9
25.1
0.7
2.1
-1.5
9.1 10.1
43.4
-4.5 -4.7
5.0
-4.4 -1.2
24.6
-4.7
1.5
39.3
-1.7
0.4
11.5
-4.5 -6.0
14.2
-4.9 -5.6
5.9
2.2 -6.8
76.7
7.6
4.3
7.9
3.0
6.7
6.6
-4.8
-1.9
1.3
2.5
3.1
4.8
0.6
-3.2
11.5
7.4
-0.4
3.5
8.2
2.3
14.4
0.0
4.4
4.5
-8.4
-5.0
-6.0
-1.7
-1.0
4.1
-5.3
-5.8
12.4
6.2
-0.5
1.0
26.4
5.7
58.5
12.4
13.8
-6.4
-0.9
5.8
-7.0
1.2
4.3
1.4
2.0
4.9
8.1
6.8
9.7
6.5
DY
(%)
16e
2.2
1.6
3.8
3.1
3.5
2.8
4.3
3.6
2.9
3.7
0.9
5.0
3.6
4.6
4.6
5.1
4.1
3.6
4.1
2.7
2.1
3.3
4.1
4.5
1.7
2.5
2.3
1.7
1.7
2.2
3.1
4.0
3.1
3.5
3.2
4.2
0.4
2.8
3.2
3.1
2.5
2.2
1.2
P/CF
(x)
16e
10.5
12.4
9.1
4.9
9.8
12.1
17.8
8.6
9.0
6.5
9.2
4.1
9.5
6.3
5.3
4.4
12.9
13.3
9.7
8.0
7.8
12.0
9.4
10.6
5.4
9.8
10.7
13.3
9.8
12.8
10.4
9.1
8.6
3.4
6.0
1.9
5.8
9.6
8.7
9.6
5.5
11.7
16.5
P/B
(x)
16e
1.9
2.3
1.6
1.0
1.7
2.8
2.0
1.5
1.6
1.7
1.8
0.8
1.5
1.4
1.5
1.0
2.2
2.3
1.7
1.3
1.2
1.1
1.1
1.8
1.0
1.8
1.9
2.0
2.3
2.6
1.5
1.7
1.9
0.8
1.1
0.6
1.1
1.9
1.8
1.6
1.2
2.2
2.6
3.4
2.7
1.6
2.1
2.2
3.1
2.5
2.5
2.1
1.7
1.7
1.9
4.4
4.0
3.5
1.2
1.7
2.2
10.3
10.0
7.6
9.4
12.0
5.5
15.5
14.7
14.2
13.2
11.2
10.8
5.2
6.0
8.4
8.9
12.6
10.5
1.6
2.3
1.3
1.8
3.0
1.2
3.6
5.6
3.3
4.3
2.9
3.3
2.2
1.5
1.0
1.1
3.5
1.9
PE
(x)
16e
18.0
19.6
15.9
11.3
14.3
17.3
17.5
15.0
14.4
14.0
14.5
13.9
16.3
19.3
14.8
14.1
16.7
17.3
16.9
15.1
15.5
16.0
13.2
16.2
11.3
15.9
16.6
18.7
18.0
19.0
17.1
15.0
16.0
8.5
12.8
6.9
9.4
16.6
16.0
11.3
16.7
19.3
18.4
17e
16.0
17.6
14.0
11.0
14.5
15.6
16.1
13.8
12.9
12.9
14.5
10.4
14.4
14.2
14.1
11.6
15.6
15.9
14.2
13.7
14.2
15.0
12.7
15.3
10.0
13.7
14.4
16.0
14.7
15.9
15.5
13.5
14.5
7.8
11.7
6.3
8.0
14.1
13.7
11.2
12.4
16.1
16.1
57.1
16.4
23.5
18.3
19.1
9.7
21.5
19.2
16.0
22.6
19.7
18.9
14.6
14.9
12.6
14.8
18.1
18.0
23.2
15.2
16.2
16.2
17.3
9.0
19.3
17.2
14.7
20.1
18.5
17.5
14.0
14.7
11.7
13.4
16.0
16.0
Sales
(y/y, %)
16e 17e
0.3
5.1
1.9
5.5
-0.2
5.6
-6.3
6.2
3.3
3.2
0.8
3.7
17.1
2.0
-1.8
5.8
-0.1
3.8
-3.9
8.2
-1.6
2.3
2.0
3.6
17.5
3.4
-9.5
8.3
1.1
4.4
-0.3
4.6
-3.2
3.3
0.0
2.8
-1.8
8.8
-2.7
3.6
-3.5
2.9
-3.6
7.1
-8.9
6.7
1.9
3.3
4.3
5.8
4.6 10.0
5.2 10.5
8.0 12.9
9.3 13.7
8.2 11.9
3.2
7.5
-0.8
5.7
1.9 12.7
-0.5 12.0
-1.1
8.4
-1.1 12.4
6.4 13.9
4.9
6.9
1.8
6.3
-3.7
6.0
28.9
9.2
11.0
8.1
6.0
5.5
-14.2
-5.3
-10.5
2.5
-0.7
-0.3
0.2
2.3
7.4
6.0
8.3
0.1
4.7
-0.6
-3.2
5.5
2.2
0.3
21.5
4.7
5.9
3.5
2.8
2.9
3.6
5.9
4.9
5.4
3.7
4.8
2.1
1.8
2.5
1.2
5.5
5.1
EPS
(y/y, %)
16e
17e
2.1 12.1
1.6 11.6
-1.6 13.8
3.1
2.9
25.3
-0.8
11.2 10.9
-17.9
8.3
0.3
8.2
3.8 11.2
-1.4
8.5
12.4
-0.5
19.1 33.5
-0.7 13.1
-28.8 36.5
4.7
4.7
-10.2 21.7
-10.7
7.4
-1.6
8.7
-4.3 18.9
6.6 10.6
10.0
9.7
-1.1
7.2
-5.0
4.6
10.0
6.1
26.1 13.4
12.9 15.0
8.3 15.0
7.9 16.5
23.3 22.7
11.8 18.9
-0.9
9.8
0.2 11.0
11.7 10.7
13.9 10.0
-5.8
9.3
19.4
9.4
10.2 17.6
30.6 17.5
34.7 17.7
11.0
1.6
5.0 35.4
24.3 20.3
131.6 14.3
-51.7 146.1
-2.1
7.5
52.1 44.5
61.7 13.5
13.2 10.2
5.3
8.0
4.7 11.1
9.6 12.6
6.9
8.5
7.2 12.4
11.2
6.8
6.6
8.3
10.1
4.5
0.1
1.3
-6.8
8.1
1.1
9.1
0.4 12.5
2.1 12.1
Source: Datastream, FTSE, IBES, Erste Group Research Calculations.
Page 27
December 2016
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Disclaimer
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Czech Republic: Česká spořitelna, a.s. is regulated for the conduct of investment activities in Czech Republic by the Czech
National Bank (CNB).
Croatia: Erste Bank Croatia is regulated for the conduct of investment activities in Croatia by the Croatian Financial Services
Supervisory Agency (HANFA).
Hungary: Erste Bank Hungary ZRT. and Erste Investment Hungary Ltd. are regulated for the conduct of investment activities in
Hungary by the Hungarian Financial Supervisory Authority (PSZAF).
Serbia: Erste Group Bank AG is regulated for the conduct of investment activities in Serbia by the Securities Commission of the
Republic of Serbia (SCRS).
Romania: Banka Comerciala Romana is regulated for the conduct of investment activities in Romania by the Romanian
National Securities Commission (CNVM).
Poland: Erste Securities Polska S.A. is regulated for the conduct of investment activities in Poland by the Polish Financial
Supervision Authority (PFSA).
Slovakia: Slovenská sporiteľňa, a.s. is regulated for the conduct of investment activities in Slovakia by the National Bank of
Slovakia (NBS).
Turkey: Erste Securities İstanbul Menkul Değerler A.Ş. is regulated for the conduct of investment activities in Turkey by the
Capital Markets Board of Turkey. As required by the Capital Markets Board of Turkey, investment information, comments and
recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided
in accordance with a contract of engagement on investment advisory concluded between brokerage houses, portfolio
management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual
opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk
and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not
bring about outcomes that fit your expectations.
Switzerland: This research report does not constitute a prospectus or similar communication in connection with an offering or
listing of securities as defined in Articles 652a, 752 and 1156 of the Swiss Code of Obligation and the listing rules of the SWX
Swiss Exchange.
Hong Kong: This document may only be received in Hong Kong by ‘professional investors’ within the meaning of Schedule 1 of
the Securities and Futures Ordinance (Cap.571) of Hong Kong and any rules made there under.
© Erste Group Bank AG 2016. All rights reserved.
Published by:
Erste Group Bank AG
Group Research
1100 Vienna, Austria, Am Belvedere 1
Head Office: Wien
Commercial Register No: FN 33209m
Commercial Court of Vienna
Erste Group Homepage: www.erstegroup.com
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Global Strategy Q3 2016

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