The global stock market followed its successful final quarter of last year and shares also grew in 1Q17. The MSCI world equity index has increased more than 6% since the beginning of the year.
The PSE’s PX index has slightly surpassed the performance of major U.S. and European indexes. It has added more than 6% since January. In comparison with regional competitors, the Polish WIG20 became a clear winner, jumping 15%. On the contrary, the Hungarian BUX’s profit of less than 1.5% has not enthused investors.
A positive for the PSE is the fact that we have found no company whose shares remained in the red in the first quarter of the year. Shares of petrochemical group Unipetrol became a clear winner, on the contrary, the largest issuance, CEZ, added the smallest gains from the Prague peloton.
The average daily trading volume for the past two quarters was more volatile. Nevertheless, it is evident that Moneta Money Bank’s entry supported trading activity on the domestic market. For the first three months, the newcomer became the No. 1 among the most traded stocks on the Prague Stock Exchange.
SG increased the weight of equities in its global portfolio from 58% to 63%. Improving macroeconomic environment, reflation and the structural switch from monetary to fiscal policy impetus in developed countries are strong incentives for investors to switch out of expensive bonds into equities.
We maintain a positive stance on most stock indices for this year. With major indexes at their record heights, the US equities look overpriced with limited upside. Once political uncertainties fade away, European equities that trade at 47% price to book discount compared with their US counterparts, should provide strong growth potential.
Our most preferred sectors include automobiles & parts, construction & materials, financial institutions and newly also Aerospace & defence. On the contrary, telecommunications and utilities belong among our least preferred sectors.
The PSE could deliver a return of 6-7% in the next 12 months. We believe financial stocks are among the most attractive. From other stocks under our coverage, we recommend buying Pegas Nonwovens, Philip Morris CR and CME.