Erste: Stock markets may stabilise in Q2

Diana Cioltei, 7 Apr 2009

Romanian version

The impacts of the global financial and confidence crisis have wormed their way into the real economy especially, and the extreme slide of the equity markets over a period of more than one year and a half being clearly exaggerated. In the most recent Erste Group report, analysts see stabilization in second quarter this year, setting the global equity weighting to neutral.

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Romania, among most attractive investment destinations

Although the economic outlook remains gloomy Erste Group analysts rate as overly bearish the reaction to the supposedly dramatic situation in CEE. While fund flow data for February is still negative (particularly for emerging Europe markets), in March money market funds experienced substantial outflows and money got directed into equity again.

“We believe that stock markets may at least further stabilise in Q2 and we therefore set our global equity weighting to neutral - for the first time since Q4 2007. The lows of early March 2009 still might be tested again. Overall, caution continues to be required and we are keeping an overweighting in cash,” says Fritz Mostböck, Head of Group Research (photo).

For the second quarter this year, Erste Group recommends an increase of cash allocation, reduction of bond and neutral for stocks.

“We continue to see markets as volatile, although we would see the notion of them having found a bottom as realistic, at least. For the region, we expect returning liquidity to focus first on the biggest markets”, says Henning Esskuchen, Co-Head of CEE Equity Research at Erste Group.

Compared to the last quarter’s country allocation (overweight Austria, Czech Republic) Erste Group analysts have become more cautious on Poland.

If one would want to play SEE, they would again point to Romania, although stressing the risk of high volatility.

With returning risk appetite, Russia has been benefiting strongly, additionally supported by better commodity prices, Russia could post further gains. Risk remains high, however, reads the report.

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