The second quarter should be supportive for equities

07.04.2016 17:00:00

The global equity markets had a terrible start to 2016 but have recovered since mid-February, especially those in the United States. The performance of European equity markets relative to the U.S. ones was the worst since 2002.

The PSE’s PX index outperformed some of the major markets but lagged behind main regional indices in Q1 16. The Hungarian BUX was the most successful with a nearly 10% gain in the quarter.

The PX index was dragged down above all by financial stocks. The biggest loser on the PSE was Vienna Insurance Group after a profit warning and an unexpected dividend cut.

The shares of coal miner NWR delivered a stellar 70% return in the first quarter. However, it is important to realise that by this increase, the shares erased only a very small part of their previous losses.

Trading activity on the PSE fell in the first quarter as the average trading volume in the first three months of the year was 21% below the 2015 level.

Société Générale keeps its balanced allocation as it recommends a 50% weight for equities in a global portfolio. The overall stance for financial markets is preferred to be reasonably bullish on risk in Q2 and balanced by the end of the year.

SG expects the major equity markets to grow in Q2 from oversold levels, followed by low single-digit quarterly declines in the second half of the year. These targets would mean essentially flat S&P 500 by the end of 2016 versus the current levels, with Japan and Europe up by mid-single digits.

From a sectoral perspective, financials, autos and components, and steel, metals and mining companies are among our preferred industries. On the other hand, we newly see investment banks as an unattractive sector.

We expect the Prague stock market to deliver a double-digit return in the rest of the year. We believe Erste Bank shares are now among the most attractive on the domestic equity market. On the other hand, we still have a negative outlook for shares of coal miner NWR.

Autor: Miroslav Frayer, Josef Němý

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