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Erste Group Research – Global Strategy Q1 2017

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.

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 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.

Investment Strategy Q1 2017: Govt. bond yields March 2017

Germany (10Y) 0.50

USA (10Y) 2.40

Currencies

March 2017

EURUSD 1.06

CHF 1.09

Equity Performances March 2017

Global 0%/ +5% Europe 0%/ +5% USA 0%/ +5%

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. 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%.



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 Friedrich Mostböck, CEFA, Gudrun Egger, CEFA

Economics

USA Rainer Singer

Eurozone Gerald Walek

CEE Juraj Kotian, Zoltan Arokszallasi

BRICs Hans Engel, Stephan Lingnau

Currencies

US-Dollar Rainer Singer

Gold Hans Engel

Swiss Franc Margarita Grushanina

Bonds

US Rainer Singer

Germany Rainer Singer

CEE Juraj Kotian, Zoltan Arokszallasi

EUR Corporate Bonds Peter Kaufmann

Equities

Global Hans Engel, Stephan Lingnau

Europe Stephan Lingnau

USA Hans Engel

CEE Henning Esskuchen

BRICs Hans Engel, Stephan LingnauEmail: [email protected]

Phone numbers: listed in the appendix.



Investment Strategy Q1 2017

current Q1 17 Q2 17 Q3 17 Q4 17

Germany 0.37 0.50 0.80 0.80 1.00

Austria 0.62 0.70 1.00 1.00 1.20

US 2.62 2.40 2.60 2.70 2.80

CEE

Czech Republic 0.49 0.67 0.47 0.48 0.49

Hungary 3.38 3.21 3.08 3.05 3.05

Poland 3.59 3.40 3.25 3.20 3.35

Romania (5Y) 2.51 2.45 2.50 2.55 2.60

Estimates

10

y.

Go

vt.

bo

nd

s

Yields

Source: Erste Group Research estimates

current Q1 17 Q2 17 Q3 17 Q4 17

EURUSD 1,04 1,06 1,08 1,10 1,12

CHF 1,07 1,09 1,10 1,11 1,12

Gold (USD) 1.127 1.160 1.220 1.260 1.260

CZK 27,02 27,0 27,0 27,0 26,4

HUF 313,22 315 315 315 315

PLN 4,44 4,43 4,40 4,41 4,39

RON 4,52 4,50 4,51 4,51 4,51

EstimatesCurrencies

CE

EG

lob

al


Equities Estimate

FTSE Indices Q1 2017 min max FX

Global 0% +5% USD

Europe 0% +5% EUR

USA 0% +5% USD

CEE 0% +5% EUR

BRICs

Brazil 0% +5% BRL

Russia 0% +5% RUB

India 0% +5% INR

0% +5% CNYChina

Em

erg

ing

Mkts

.




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.

The global economic environment has improved in the course of the second half of 2016. A persistent increase in commodity prices since the 1

st 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.

Germany and Spain remain the locomotives of the euro zone

economy

GDP growth (q/q), regional Spain, Germany and France the pillars of growth in the euro zone

Commodity price index Gradual advance since January 2016 indicates cyclical recovery

0.4

%

0.2

%

0.4

%

0.8

%

0.6

%

0.4

%

0.7

% 0.8

%

-0.1

%

0.1

%

0.4

%

0.8

%

0.2

% 0.3

%

0.2

%

0.7

%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

FR IT DE ES

Q4 2015 Q1 2016 Q2 2016 Q3 2016

Dec. 2008

Apr. 2011

Jan. 2016

0

100

200

300

400

500

600

700

Nov-00 Sep-02 Jul-04 May-06 Mar-08 Jan-10 Nov-11 Sep-13 Jul-15 Source: Eurostat, Erste Group Research Source: AMECO, Erste Group Research

Acceleration in global growth should support euro zone economy in 2017 as well



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 Prices of services have accelerated GDP growth, q/q annualized PCE core inflation and individual components, y/y in %

2.0

0.90.8

1.4

2.9

2.12.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Forecast

-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16

Services (incl. Housing)

PCE excluding food and energy

Durable goods, r.s.

Source: Bloomberg, Erste Group Research Source: Bloomberg, Erste Group Research



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.



BRIC Economic Outlook

China Economic growth of at least 6.5% is targeted in 2017. China's economic situation continues to stabilize. The Bloomberg GDP indicator currently suggests stable growth of 7% in the 4

th 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. 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%. 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.

China: Bloomberg GDP indicator

10.0

7.0

5

6

7

8

9

10

11

Okt.10 Jul.11 Apr.12 Jän.13 Okt.13 Jul.14 Apr.15 Jän.16 Okt.16

in %

Source: Bloomberg, Erste Group Research RMB-USD exchange rate

5

5.5

6

6.5

7

7.5

8

8.5

9

Aug.05 Feb.07 Aug.08 Feb.10 Aug.11 Feb.13 Aug.14 Feb.16 Source: Bloomberg, Erste Group Research India: GDP

Source: Datastream

India: INR vs USD & EUR

Source: Datastream



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. 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

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. 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.

Brazil: Industrial Entrepreneur Confidence Index

Source: Datastream, Erste Group Research

Brazil: Growth in industrial production and retail sales negative year-on-year


Russia: quarterly GDP growth


Russia: central bank refinancing rate




Bonds Yield Forecast Q1 2017

Euro Zone Main Refinancing Rate 0.00 %

German Bund 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

Yields should continue to remain below the inflation rate and hence at crisis levels

Yield on German 2 year notes, in % in %

-0.78

-0.76

-0.74

-0.72

-0.7

-0.68

-0.66

-0.64

-0.62

-0.6

0.5 0.8 0.8

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan

-10

May-1

0

Sep-1

0

Jan

-11

May-1

1

Sep-1

1

Jan

-12

May-1

2

Sep-1

2

Jan

-13

May-1

3

Sep-1

3

Jan

-14

May-1

4

Sep-1

4

Jan

-15

May-1

5

Sep-1

5

Jan

-16

May-1

6

Sep-1

6

Jan

-17

May-1

7

Sep-1

7

Inflation 10y yield

ForecastEurozone debt crisis




US Yield Forecast Q1 2017

Federal Funds Rate 0.75 – 1.00 %

US Treasury Notes 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

Yields should continue to rise in the course of the year

in % in %

0.820.98

1.29

1.60

1.83

1.29

1.62

2.09

2.412.60

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2y 3y 5y 7y 10y

7-Nov-16 15-Dec-16

0.5 0.8 0.8

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jan

-10

May-1

0

Sep-1

0

Jan

-11

May-1

1

Sep-1

1

Jan

-12

May-1

2

Sep-1

2

Jan

-13

May-1

3

Sep-1

3

Jan

-14

May-1

4

Sep-1

4

Jan

-15

May-1

5

Sep-1

5

Jan

-16

May-1

6

Sep-1

6

Jan

-17

May-1

7

Sep-1

7

Inflation 10y yield

ForecastEurozone debt crisis




CEE Government Bonds Yield Forecast Q1 2017

Czech Republic 0.67% (10Y)

Hungary 3.21% (10Y)

Poland 3.40% (10Y)

Romania 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 shorter-dated Czech bonds deeply negative in upcoming quarters too.



EUR-Corporate Bonds

Investment Grade

High Yield

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. 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. 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 year-end 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.

The ECBs CSPP* has shaped 2016. It continues in 2017 Spreads over sovereign bonds in basis points, average remaining term to maturity: ~ 5 years

350

400

450

500

550

600

650

700

750

800

100

110

120

130

140

150

160

170

180

190

20

16

/01

20

16

/02

20

16

/03

20

16

/04

20

16

/05

20

16

/06

20

16

/07

20

16

/08

20

16

/09

20

16

/10

20

16

/11

20

16

/12

Investment Grade High Yield (rhs)

China,Oil price

ECBannounces

CSPP

ECB purchases anticipated

"Brexit" effect

New issue volume rises

ECB purchases start

US presidential

election

Source: Markit, Erste Group Research As of: 12. December 2016 “Corporate Sector Purchase Program"

Investment grade corporate bonds: the CSPP is probably already distorting risk premiums somewhat Credit spreads in basis points vs.net debt/EBITDA ratio (median)

2.6x2.2x

2.2x 2.4x 2.4x 2.5x2.7x

3.0x

121 bps

0

40

80

120

160

200

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

20

09

20

10

20

11

20

12

20

13

20

14

20

15

30

.06

.20

16

12

.12

.20

16

Total debt / EBITDA (IG, median)Benchmark spreads in bps (per 12/31), rhs

Source: Bloomberg, Markit, Erste Group Research As of: 12. December 2016 Yields continue to be at low levels on a historical basis Average yields in %, avg. remaining term to maturity: ~ 5 years

2.5

%

3.8

%

4.8

%

1.3

%

3.2

%

4.7

%

1.8

%

4.4

%

5.7

%

1.2

%

3.5

% 4.0

%

0%

1%

2%

3%

4%

5%

6%

Investment Grade Hybrid Bonds High Yield

End of 2013

End of 2014

End of 2015

12 December 2016

Source: Markit, Erste Group Research As of: 12. December 2016



Currencies

US-Dollar

Forecast Q1 2017

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

1.06 1.08

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

Jan-1

4

Ma

r-1

4

Ma

y-14

Jul-1

4

Sep

-14

Nov-1

4

Jan-1

5

Ma

r-1

5

Ma

y-15

Jul-1

5

Sep

-15

Nov-1

5

Jan-1

6

Ma

r-1

6

Ma

y-16

Jul-1

6

Sep

-16

Nov-1

6

Jan-1

7

Ma

r-1

7

Ma

y-17

Jul-1

7

Forecast

Source: Bloomberg, Erste Group Research



Swiss Franc

Forecast Q1 2017

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.



Gold in USD

Forecast Q1 2017

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.

Demand declines in Q3 – gold's attractiveness relative to other asset classes has

diminished



Stocks

Global

Forecast Q1 2017

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. 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.

FTSE World consensus expectations Earnings and sales growth (y/y, %) FTSE Indices

16e 17e 16e 17e

North America 2.3 5.5 2.1 12.1

Europe -0.2 5.6 -1.6 13.8

Asia -2.7 3.6 6.6 10.6

EM Asia 5.2 10.5 8.3 15.0

EM LatAm 4.9 6.9 30.6 17.5

EM Europe -0.5 12.0 13.9 10.0

World 0.3 5.1 2.1 12.1

Sales EPS

Source: Datastream FTSE World sectors Earnings growth estimates (y/y, %)

Source: Datastream



Global Sectors (1) 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 below-average 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%.

Outlook: 0 to +5%

PE 17e 23.2x

EPS 17e 146.1%

Outlook: 0 to +5%

PE 17e 15.2x

EPS 17e 7.5%

Outlook: 0 to +5%

PE 17e 16.2x

EPS 17e 44.5%

Outlook: 0 to +5%

PE 17e 16.2x

EPS 17e 13.5%

Outlook: 0 to +5%

PE 17e 17.3x

EPS 17e 10.2%

Outlook: 0 to +5%

PE 17e 9x

EPS 17e 8%



Global Sectors (2) 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.

Outlook: 0 to -5%

PE 17e 19.3x

EPS 17e 11.1%

Outlook: 0 to -5%

PE 17e 17.2x

EPS 17e 12.6%

Outlook: 0 to +5%

PE 17e 14.7x

EPS 17e 8.5%

Outlook: 0 to +5%

PE 17e 20.1x

EPS 17e 12.4%

Outlook: 0 to +5%

PE 17e 18.5x

EPS 17e 6.8%

Outlook: 0 to +5%

PE 17e 17.5x

EPS 17e 8.3%



Global Sectors (3) 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%.

Outlook: 0 to +5%

PE 17e 16x

EPS 17e 12.5%

Outlook: 0 to -5%

PE 17e 14.7x

EPS 17e 1.3%

Outlook: 0 to -5%

PE 17e 14x

EPS 17e 4.5%

Outlook: 0 to +5%

PE 17e 11.7x

EPS 17e 8.1%

Outlook: 0 to +5%

PE 17e 13.4x

EPS 17e 9.1%



Europe

Forecast Q1 2017

0% to +5% 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

Source: Datastream, Erste Group Research Source: Datastream, Erste Group Research

FTSE Europe consensus estimates Earnings and sales growth (y/y, %) FTSE Indices

16e 17e 16e 17e

UK -1,8 8,8 -4,3 18,9

Switzerland 0,0 2,8 -1,6 8,7

France -1,8 5,8 0,3 8,2

Germany -0,1 3,8 3,8 11,2

Spain -0,3 4,6 -10,2 21,7

Europe -0,2 5,6 -1,6 13,8

Sales EPS

Source: Datastream



USA Forecast Q1 2017

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 non-manufacturing 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%.



CEE Forecast Q1 2017

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.



India Forecast Q1 2017

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. 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%.

China | Hong Kong Forecast Q1 2017

0% to +5% The FTSE China Index rose by 3.2% in EUR terms in the 4

th 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. 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%.

India: IFO Indexes

Source: Datastream

China: IFO Indexes

Source: Datastream



Brazil Forecast Q1 2017

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%.

Russia Forecast Q1 2017

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. 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.

Brazilian real vs. USD: Significant appreciation in 2016 BRL/USD:


Russia RTS Index and the oil price:




Tables & Appendix

Economic indicators

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 0.1 0.2 65.9 63.6

France 1.3 1.6 1.5 1.0 1.1 9.6 9.3 -0.4 -0.3 -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 1.4 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 -3.3 108.4 107.9

Canada 1.2 1.9 1.9 2.1 2.1 7.1 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 -4.4 253.0 254.9

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 1.1 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

GDP

(% yoy)

Gross

Debt

(% GDP)

Inflation

(% yoy)

Un-

employ.

(%)

CA

Balance

(% GDP)

Fiscal

Balance

(% GDP)

Ea

ste

rn E

uro

pe

Am

eri

ca

sA

sia

Eu

rop

e

Source: IMF, EU Commission, Erste Group Research estimates



Forecasts1

*Mid of target range

Source: Bloomberg, Erste Group Research

1 By regulations we are obliged to issue the following statement: Forecasts are no reliable

indicator for future performance

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

current Mar-17 Jun-17 Sep-17 Dec-17 EURUSD 1.04 1.06 1.08 1.10 1.12 EURCHF 1.07 1.09 1.1 1.11 1.12

current Mar-17 Jun-17 Sep-17 Dec-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* 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

current 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



Consensus estimates

MarketMarket Weight DY P/CF P/B

Cap. Cap. (%) (%) (x) (x)

FTSE Index

( (bn EUR) World 1M 3M 6M 12M YTD 1M 3M YTD 16e 16e 16e 16e 17e 16e 17e 16e 17e

World 33,079 100.0 6.2 3.5 8.3 3.0 7.9 3.5 1.0 6.5 2.2 10.5 1.9 18.0 16.0 0.3 5.1 2.1 12.1

USA 18,539 56.0 9.2 5.8 10.1 6.7 11.4 4.7 1.0 9.3 1.6 12.4 2.3 19.6 17.6 1.9 5.5 1.6 11.6

Europe 7,053 21.3 2.5 -2.6 -0.1 -8.0 -3.3 0.4 -2.5 1.1 3.8 9.1 1.6 15.9 14.0 -0.2 5.6 -1.6 13.8

Austria 23 0.1 3.9 8.4 15.7 3.9 7.7 3.9 8.4 7.7 3.1 4.9 1.0 11.3 11.0 -6.3 6.2 3.1 2.9

Belgium 140 0.4 -2.8 -8.9 -7.9 -11.3 -8.4 -2.8 -8.9 -8.4 3.5 9.8 1.7 14.3 14.5 3.3 3.2 25.3 -0.8

Denmark 181 0.5 -1.0 -12.4 -17.6 -17.8 -17.1 -1.0 -12.4 -17.3 2.8 12.1 2.8 17.3 15.6 0.8 3.7 11.2 10.9

Finland 115 0.3 1.2 -4.5 1.3 -9.0 -5.6 1.2 -4.5 -5.6 4.3 17.8 2.0 17.5 16.1 17.1 2.0 -17.9 8.3

France 1,049 3.2 2.3 0.4 2.2 -3.7 1.4 2.3 0.4 1.4 3.6 8.6 1.5 15.0 13.8 -1.8 5.8 0.3 8.2

Germany 1,001 3.0 0.9 -2.3 2.7 -5.7 -2.0 0.9 -2.3 -2.0 2.9 9.0 1.6 14.4 12.9 -0.1 3.8 3.8 11.2

Greece 14 0.0 12.7 8.4 -8.5 -18.4 -19.0 12.7 8.4 -19.0 3.7 6.5 1.7 14.0 12.9 -3.9 8.2 -1.4 8.5

Ireland 22 0.1 3.2 -5.3 -14.6 -19.9 -18.1 3.2 -5.3 -18.1 0.9 9.2 1.8 14.5 14.5 -1.6 2.3 12.4 -0.5

Italy 230 0.7 4.1 -0.6 -3.3 -21.7 -17.5 4.1 -0.6 -17.5 5.0 4.1 0.8 13.9 10.4 2.0 3.6 19.1 33.5

Netherlands 342 1.0 0.1 -5.4 -1.0 -2.7 1.8 0.1 -5.4 1.8 3.6 9.5 1.5 16.3 14.4 17.5 3.4 -0.7 13.1

Norway 70 0.2 6.0 8.6 10.1 3.5 15.0 4.6 4.8 7.4 4.6 6.3 1.4 19.3 14.2 -9.5 8.3 -28.8 36.5

Portugal 17 0.1 -1.7 -5.2 -1.6 0.9 -2.2 -1.7 -5.2 -2.2 4.6 5.3 1.5 14.8 14.1 1.1 4.4 4.7 4.7

Spain 332 1.0 -3.3 -2.7 -1.7 -13.3 -5.9 -3.3 -2.7 -5.9 5.1 4.4 1.0 14.1 11.6 -0.3 4.6 -10.2 21.7

Sweden 318 1.0 4.6 -0.1 2.5 -5.4 -0.3 3.7 2.3 6.8 4.1 12.9 2.2 16.7 15.6 -3.2 3.3 -10.7 7.4

Switzerland 974 2.9 0.9 -4.4 -2.4 -8.6 -6.8 0.9 -5.8 -7.6 3.6 13.3 2.3 17.3 15.9 0.0 2.8 -1.6 8.7

United Kingdom 2,131 6.4 6.0 -2.1 1.5 -8.3 -1.9 -1.1 -1.7 12.1 4.1 9.7 1.7 16.9 14.2 -1.8 8.8 -4.3 18.9

Pacific 5,710 17.3 3.0 4.9 12.9 4.2 8.1 5.0 6.0 2.5 2.7 8.0 1.3 15.1 13.7 -2.7 3.6 6.6 10.6

Japan 2,991 9.0 2.5 6.3 12.5 0.8 4.5 8.4 11.0 -3.0 2.1 7.8 1.2 15.5 14.2 -3.5 2.9 10.0 9.7

Hong Kong 443 1.3 1.5 2.2 12.9 5.4 9.9 -2.7 -2.4 7.9 3.3 12.0 1.1 16.0 15.0 -3.6 7.1 -1.1 7.2

Singapore 154 0.5 7.2 6.2 8.7 4.3 7.4 5.6 6.0 5.6 4.1 9.4 1.1 13.2 12.7 -8.9 6.7 -5.0 4.6

Australia 873 2.6 6.8 7.1 15.3 10.3 13.1 5.4 3.7 8.4 4.5 10.6 1.8 16.2 15.3 1.9 3.3 10.0 6.1

Korea 536 1.6 2.3 -1.2 11.3 4.3 9.4 0.0 -0.9 7.3 1.7 5.4 1.0 11.3 10.0 4.3 5.8 26.1 13.4

Emerging Markets 3,071.9 9.3 -0.2 0.3 12.8 7.4 13.8 -1.8 -2.1 11.0 2.5 9.8 1.8 15.9 13.7 4.6 10.0 12.9 15.0

EM Asia 1,994.8 6.0 1.4 1.0 13.1 5.2 9.8 -1.5 -2.1 7.9 2.3 10.7 1.9 16.6 14.4 5.2 10.5 8.3 15.0

China 814 2.5 4.6 3.2 17.7 1.7 7.6 0.3 -1.5 5.7 1.7 13.3 2.0 18.7 16.0 8.0 12.9 7.9 16.5

India 364 1.1 -3.2 -4.5 4.1 0.9 1.7 -5.2 -6.9 2.9 1.7 9.8 2.3 18.0 14.7 9.3 13.7 23.3 22.7

Indonesia 85 0.3 -5.1 -1.6 15.6 18.7 21.0 -5.8 -4.1 16.5 2.2 12.8 2.6 19.0 15.9 8.2 11.9 11.8 18.9

Malaysia 112 0.3 -3.9 -6.1 -1.3 -5.3 -2.3 -2.1 -2.3 -0.6 3.1 10.4 1.5 17.1 15.5 3.2 7.5 -0.9 9.8

Taiwan 454 1.4 2.6 6.5 20.5 16.7 22.4 -0.6 2.4 16.7 4.0 9.1 1.7 15.0 13.5 -0.8 5.7 0.2 11.0

Thailand 116 0.4 2.2 -1.5 9.2 12.7 24.4 -0.4 -3.2 20.8 3.1 8.6 1.9 16.0 14.5 1.9 12.7 11.7 10.7

EM Europe 267 0.8 5.7 6.1 13.1 11.8 22.3 5.1 5.9 25.1 3.5 3.4 0.8 8.5 7.8 -0.5 12.0 13.9 10.0

Poland 39 0.1 -2.9 -0.7 2.2 -7.3 -5.9 0.7 2.1 -1.5 3.2 6.0 1.1 12.8 11.7 -1.1 8.4 -5.8 9.3

Russia 159 0.5 13.8 15.3 30.6 29.8 46.2 9.1 10.1 43.4 4.2 1.9 0.6 6.9 6.3 -1.1 12.4 19.4 9.4

Turkey 37 0.1 -11.7 -16.1 -15.7 -20.1 -11.4 -4.5 -4.7 5.0 0.4 5.8 1.1 9.4 8.0 6.4 13.9 10.2 17.6

EM Latin America 487 1.5 -6.0 -3.1 16.0 19.5 28.9 -4.4 -1.2 24.6 2.8 9.6 1.9 16.6 14.1 4.9 6.9 30.6 17.5

Brazil 281 0.9 -7.1 -0.4 32.0 47.9 62.2 -4.7 1.5 39.3 3.2 8.7 1.8 16.0 13.7 1.8 6.3 34.7 17.7

Chile 43 0.1 -0.5 5.6 13.4 18.4 19.9 -1.7 0.4 11.5 3.1 9.6 1.6 11.3 11.2 -3.7 6.0 11.0 1.6

Colombia 17 0.1 0.1 -4.6 7.2 25.2 20.9 -4.5 -6.0 14.2 2.5 5.5 1.2 16.7 12.4 28.9 9.2 5.0 35.4

Mexico 135 0.4 -6.8 -10.5 -6.3 -16.6 -9.7 -4.9 -5.6 5.9 2.2 11.7 2.2 19.3 16.1 11.0 8.1 24.3 20.3

Peru 10 0.0 5.5 -3.0 15.1 63.2 80.1 2.2 -6.8 76.7 1.2 16.5 2.6 18.4 16.1 6.0 5.5 131.6 14.3

Sectors

Oil & Gas 2,275 6.9 4.1 11.4 17.1 13.7 26.5 7.6 8.2 26.4 3.4 10.3 1.6 57.1 23.2 -14.2 21.5 -51.7 146.1

Chemicals 974 2.9 10.0 3.8 11.0 2.3 7.8 4.3 2.3 5.7 2.7 10.0 2.3 16.4 15.2 -5.3 4.7 -2.1 7.5

Basic Resources 630 1.9 3.7 15.8 34.9 47.0 58.4 7.9 14.4 58.5 1.6 7.6 1.3 23.5 16.2 -10.5 5.9 52.1 44.5

Construction & Mat. 439 1.3 -2.4 0.5 6.9 7.3 13.0 3.0 0.0 12.4 2.1 9.4 1.8 18.3 16.2 2.5 3.5 61.7 13.5

Industrials 3,910 11.8 2.3 6.6 13.5 9.6 15.7 6.7 4.4 13.8 2.2 12.0 3.0 19.1 17.3 -0.7 2.8 13.2 10.2

Automobiles & Parts 876 2.6 6.2 3.7 9.3 -7.1 -3.1 6.6 4.5 -6.4 3.1 5.5 1.2 9.7 9.0 -0.3 2.9 5.3 8.0

Food & Beverage 1,458 4.4 4.6 -6.5 -2.9 -2.9 -0.3 -4.8 -8.4 -0.9 2.5 15.5 3.6 21.5 19.3 0.2 3.6 4.7 11.1

Pers. & HH Goods 2,038 6.2 5.2 -3.6 2.8 2.0 6.0 -1.9 -5.0 5.8 2.5 14.7 5.6 19.2 17.2 2.3 5.9 9.6 12.6

Health Care 3,531 10.7 -1.8 -3.1 -3.5 -7.6 -5.9 1.3 -6.0 -7.0 2.1 14.2 3.3 16.0 14.7 7.4 4.9 6.9 8.5

Retail 1,909 5.8 13.4 1.4 4.9 -0.6 3.1 2.5 -1.7 1.2 1.7 13.2 4.3 22.6 20.1 6.0 5.4 7.2 12.4

Media 935 2.8 15.0 2.4 3.5 -2.3 5.2 3.1 -1.0 4.3 1.7 11.2 2.9 19.7 18.5 8.3 3.7 11.2 6.8

Travel & Leisure 837 2.5 10.3 6.2 7.2 0.9 3.0 4.8 4.1 1.4 1.9 10.8 3.3 18.9 17.5 0.1 4.8 6.6 8.3

Telecom 1,066 3.2 2.7 -3.8 -1.0 -0.8 2.7 0.6 -5.3 2.0 4.4 5.2 2.2 14.6 14.0 4.7 2.1 10.1 4.5

Utilities 1,047 3.2 2.2 -3.6 -0.5 4.4 5.7 -3.2 -5.8 4.9 4.0 6.0 1.5 14.9 14.7 -0.6 1.8 0.1 1.3

Banks 3,367 10.2 17.0 14.4 19.1 3.9 9.7 11.5 12.4 8.1 3.5 8.4 1.0 12.6 11.7 -3.2 2.5 -6.8 8.1

Insurance 1,625 4.9 4.1 8.7 10.1 3.2 7.8 7.4 6.2 6.8 1.2 8.9 1.1 14.8 13.4 5.5 1.2 1.1 9.1

Technology 3,860 11.7 36.5 3.4 13.5 5.9 11.9 -0.4 -0.5 9.7 1.7 12.6 3.5 18.1 16.0 2.2 5.5 0.4 12.5

World 33,079 100.0 6.2 3.5 8.3 3.0 7.9 3.5 1.0 6.5 2.2 10.5 1.9 18.0 16.0 0.3 5.1 2.1 12.1

ICB

Se

cto

rs

local (%) (x)

Ad

va

nce

d M

ark

ets

Em

erg

ing

Ma

rke

ts

(y/y, %)

Tot. Return

in EUR (%)

EPS

(y/y, %)

PETot. Return Sales

Source: Datastream, FTSE, IBES, Erste Group Research Calculations.



Contacts

Contacts Group Research Head of Group Research

Friedrich Mostböck, CEFA +43 (0)5 0100 11902 Major Markets & Credit Research Head: Gudrun Egger, CEFA +43 (0)5 0100 11909 Ralf Burchert, CEFA (Agency Analyst) +43 (0)5 0100 16314 Hans Engel (Senior Analyst Global Equities) +43 (0)5 0100 19835 Christian Enger, CFA (Covered Bonds) +43 (0)5 0100 84052 Margarita Grushanina (Economist AT, CHF) +43 (0)5 0100 11957 Peter Kaufmann, CFA (Corporate Bonds) +43 (0)5 0100 11183 Stephan Lingnau (Global Equities) +43 (0)5 0100 16574 Carmen Riefler-Kowarsch (Covered Bonds) +43 (0)5 0100 19632 Rainer Singer (Senior Economist Euro, US) +43 (0)5 0100 17331 Bernadett Povazsai-Römhild (Corporate Bonds) +43 (0)5 0100 17203 Elena Statelov, CIIA (Corporate Bonds) +43 (0)5 0100 19641 Gerald Walek, CFA (Economist Euro) +43 (0)5 0100 16360 Katharina Böhm-Klamt (Quantitative Analyst Euro) +43 (0)5 0100 19632 Macro/Fixed Income Research CEE Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357 Zoltan Arokszallasi, CFA (Fixed income) +43 (0)5 0100 18781 Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356 CEE Equity Research Head: Henning Eßkuchen +43 (0)5 0100 19634 Daniel Lion, CIIA (Technology, Ind. Goods&Services) +43 (0)5 0100 17420 Christoph Schultes, MBA, CIIA (Real Estate) +43 (0)5 0100 11523 Vera Sutedja, CFA, MBA (Telecom) +43 (0)5 0100 11905 Thomas Unger, CFA (Banks, Insurance) +43 (0)5 0100 17344 Vladimira Urbankova, MBA (Pharma) +43 (0)5 0100 17343 Martina Valenta, MBA (Real Estate) +43 (0)5 0100 11913 Editor Research CEE Brett Aarons +420 956 711 014 Research Croatia/Serbia Head: Mladen Dodig (Equity) +381 11 22 09178 Head: Alen Kovac (Fixed income) +385 72 37 1383 Anto Augustinovic (Equity) +385 72 37 2833 Milan Deskar-Skrbic (Fixed income) +385 72 37 1349 Magdalena Dolenec (Equity) +385 72 37 1407 Ivana Rogic (Fixed income) +385 72 37 2419 Davor Spoljar, CFA (Equity) +385 72 37 2825 Research Czech Republic

Head: David Navratil (Fixed income) +420 956 765 439 Head: Petr Bartek (Equity) +420 956 765 227 Jiri Polansky (Fixed income) +420 956 765 192 Pavel Smolik (Equity) +420 956 765 434 Jan Sumbera (Equity) +420 956 765 218 Roman Sedmera (Fixed income) +420 956 765 391 Jana Urbankova (Fixed income) +420 956 765 456 Research Hungary Head: József Miró (Equity) +361 235 5131 Gergely Ürmössy (Fixed income) +361 373 2830 András Nagy (Equity) +361 235 5132 Orsolya Nyeste (Fixed income) +361 268 4428 Tamás Pletser, CFA (Oil&Gas) +361 235 5135 Research Poland Head: Magdalena Komaracka, CFA (Equity) +48 22 330 6256 Marek Czachor (Equity) +48 22 330 6254 Tomasz Duda (Equity) +48 22 330 6253 Mateusz Krupa (Equity) +48 22 330 6251 Karol Brodziński (Equity) +48 22 330 6252 Research Romania Head: Mihai Caruntu (Equity) +40 3735 10427 Head: Dumitru Dulgheru (Fixed income) +40 3735 10433 Chief Analyst: Eugen Sinca (Fixed income) +40 3735 10435 Dorina Ilasco (Fixed Income) +40 3735 10436 Research Slovakia Head: Maria Valachyova, (Fixed income) +421 2 4862 4185 Katarina Muchova (Fixed income) +421 2 4862 4762 Research Turkey Umut Ozturk (Equity) +90 212 371 25 30 Oguzhan Evranos (Equity) +90 212 371 25 42

Treasury - Erste Bank Vienna

Group Markets Retail Sales Head: Christian Reiss +43 (0)5 0100 84012 Markets Retail a. Sparkassen Sales AT Head: Markus Kaller +43 (0)5 0100 84239 Equity a. Fund Retail Sales Head: Kurt Gerhold +43 (0)5 0100 84232 Fixed Income a. Certificate Sales Head: Uwe Kolar +43 (0)5 0100 83214 Markets Corporate Sales AT Head: Christian Skopek +43 (0)5 0100 84146

Fixed Income Institutional Sales

Group Markets Financial Institutions Head: Manfred Neuwirth +43 (0)5 0100 84250 Bank and Institutional Sales Head: Jürgen Niemeier +49 (0)30 8105800 5503 Institutional Sales Western Europe AT, GER, FRA, BENELUX Head: Thomas Almen +43 (0)5 0100 84323 Charles-Henry de Fontenilles +43 (0)5 0100 84115 Marc Pichler +43 (0)5 0100 84118 Rene Klasen +49 (0)30 8105800 5521 Dirk Seefeld +49 (0)30 8105800 5523 Bernd Bollhof +49 (0)30 8105800 5525 Bank and Savingsbanks Sales Head: Marc Friebertshäuser +49 (0)711 810400 5540

Sven Kienzle +49 (0)711 810400 5541 Michael Schmotz +43 (0)5 0100 85542 Ulrich Inhofner +43 (0)5 0100 85544 Martina Fux +43 (0)5 0100 84113 Michael Konczer +43 (0)5 0100 84121 Klaus Vosseler +49 (0)711 810400 5560 Andreas Goll +49 (0)711 810400 5561 Mathias Gindele +49 (0)711 810400 5562 Institutional Sales CEE and International Head: Jaromir Malak +43 (0)5 0100 84254 Central Bank and International Sales

Head: Margit Hraschek +43 (0)5 0100 84117 Christian Kössler +43 (0)5 0100 84116 Bernd Thaler +43 (0)5 0100 84119 Institutional Sales PL and CIS Pawel Kielek +48 22 538 6223 Michal Jarmakowicz (Fixed Income) +43 50100 85611 Institutional Sales Slovakia Head: Peter Kniz +421 2 4862 5624 Monika Smelikova +421 2 4862 5629 Institutional Sales Czech Republic Head: Ondrej Cech +420 2 2499 5577 Milan Bartos +420 2 2499 5562 Barbara Suvadova +420 2 2499 5590 Institutional Asset Management Sales Czech Republic Head: Petr Holecek +420 956 765 453 Martin Perina +420 956 765 106 Petr Valenta +420 956 765 140 David Petracek +420 956 765 809 Institutional Sales Croatia Head: Antun Buric +385 (0)7237 2439 Željko Pavičić +385 (0)7237 1494 Ivan Jelavic +385 (0)7237 1638 Institutional Sales Hungary Attila Hollo +36 1 237 8209 Borbala Csizmadia +36 1 237 8205 Institutional Sales Romania Head: Ciprian Mitu +43 (0)50100 85612 Stefan Racovita +40 373 516 531 Business Support Tamara Fodera +43 (0)50100 12614 Bettina Mahoric +43 (0)50100 86441



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