The Austrian market has been underperforming in comparison with other continental markets where it normally shows a high correlation due to changes in its company taxation.

Yet analysts believe that the market could still provide opportunities for stock selection.

Paul Severin, head of re-search Austrian equities at Creditanstalt Investment Bank in Vienna says: “We had a very high correlation with Germany but since last year, we have faced a significant underperformance due to the tax effect.”

Severin also points to a weak fundamental development which gave rise to a negative earnings trend in 1996.

“There is a clear decoupling on the profit side.” he says. “In 1997, Austrian company profits are about 10%, but European companies are at 15 to 20%.”

He is positive however about regaining some of this 20%. From 1998, companies will be able to write losses and expenses off against tax and this will be coupled to an im-proving economic climate.

He says: “We expect profits to come up to 16% in 1998 and that gives the Austrian stock exchange quite an attractive evaluation. We now value the AEX with a 13 p/e ratio.”

He points out that Austria has to watch the Bundesbank closely but that the bank does not expect any major moves and see little pressure on inflation predicted to be 2% the same as in 1996.

“Bond yields are moving parallel to the German bond and those are moving parallel to the US. There could al-ways be a potential danger.”

Anthony Parker, head of equity research at Kleinwort Benson in London is decidedly downbeat about the market: “The market will continue to be very stock selective and largely driven by international money. Unfortunately as an overall market, stocks are not shareholder friendly and investors tend to avoid it,” he says.

He continues: “The index is dominated by financials, utilities and OMV the big oil and gas utility. If those companies are not delivering then the index will have trouble performing.”

On individual shares worth holding he is more positive: “Radex Herakligh and BWT have done well. It has some very good industrials. I think investors who want decent industrial companies could look to Austria.”

However he adds: “It has been slow in coming to terms with regulatory change and concepts such as shareholder value. In terms of trading, it is dominated by Bank Austria.”

On this theme, Michael Culik at Credit Lyonnais in Vienna says that following the recent acquisition by Bank Austria of Creditanstalt, its stock price has fallen from 831 to below 700 which is depressing the market.

He predicts that the Austrian traded index currently at 1160 will be at 1250 up to 1300 by the end of the year.

He recommends VA Steel, BWT and AMS and adds that Vienna airport could also be a cash cow, having completed most of its infrastructure spending.

He says however that small-er companies are frustrated by the fact that there is only a quotation once a day in Vienna for them.

Severin is bullish about cyclicals especially VA Steel and Radex, two highly cyclical companies.

He also rates AMS over the long term, despite poor figures released last month due to low demand in the US and Bohler Udbehorm, a steel conglomerate which has performed well when other companies have encountered difficulties.

He recommends VA Technology which came down significantly recently but “without fundamental grounds because of profit taking.” He adds: “This will be the blue chip of the Austrian stock exchange.”

His final recommendation is OMV, which is expanding dramatically in Eastern Europe and makes up 16% of the local index.

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