• Growth outlook: advanced economies take the lead
• CEE: Central Europe has a growth edge over CIS
• Politics in CEE: elections, taxation plans and regulatory measures as uncertainty factors
• Central banks: end of excess liquidity with implications for financial markets
• China: soft landing dampens commodity prices and strengthens Yuan
• Europe on the road to the Banking Union
• Asset Allocation: equities stay more attractive than bonds despite higher risks
• The high price of the German energy overhaul
• Oil price recovers
• Technology Trends: Internet of Things, 3D-printers and Mobile Payments

 “For 2014, leading indicators show a recovery of global growth. Advanced economies take the lead, as net exports and private investments support growth. For the US we expect 2.5 per cent, for Japan 2.3 per cent and for the Eurozone 1.5 per cent. Also Emerging Markets, like for example the countries in Central- and Eastern Europe (CEE) will show moderate growth with just below 2 per cent“, starts  Peter Brezinschek, Chief Analyst of Raiffeisen Research, his capital market theme overview for 2014 with growth forecasts.

CEE: Central Europe has a growth edge over CIS

“We expect particularly positive growth for CE with about 2.3 per cent, which is clearly above the expected growth for SEE (up 1.7 per cent) and CIS with 1.6 per cent. Especially Poland, CzechRepublic and Slovakia will be the leading forces in this region. The growth in Hungary will be more moderate at 1.5 per cent, whereas we expect Slovenia to stay in recession also during 2014”, continues Brezinschek. It is worth noting that countries with strong export ties to Germany profit stronger than others and hence CE took over the growth leadership from Russia and Ukraine.

Politics in CEE: elections, taxation plans and regulatory measures as uncertainty factors

Although 2014 will be an interesting election year for some countries in CEE, analysts of Raiffeisen Research see the market’s reaction towards this issue neutral. Only early elections in Slovenia and an instable new government in Hungary could lead to negative market reactions. A real burden for the markets, on the other hand, could be potential new special taxes or new regulatory measurements. In Poland a specific factor remains the new pension reform with its still not predictable impact on equity and bond markets.

Central banks: end of excess liquidity with implications for financial markets

Despite the surprising announcement of the American Federal Reserve in September 2013 to continue its existing bond purchasing program, the experts of Raiffeisen Research expect a reduction of the program starting from the first quarter in 2014. “The end of the American excess liquidity will have impacts on the financial markets. However, by then we expect economic growth to be the leading force. Nevertheless, we also expect that India, Brazil and other Emerging Markets will again get under pressure, as the structural problems in these countries are still not solved”, continues Brezinschek his overview on the global markets. The impact on CEE stays temporary and not strongly developed, as the dependency from foreign funding decreased massively. The analysts of Raiffeisen Research see a strong USD in the first half of 2014, as the currency is benefitting from this change in fiscal politics.

China: soft landing dampens commodity prices and strengthens Yuan

China’s leadership decided in October and November about several reform plans. “In addition to economic reforms to support a stronger market orientation and an increase of private consumption, 2014 will focus on the further liberalization of capital flows and exchange rates”, summarizes Brezinschek the development in the People’s Republic. The analysts of Raiffeisen Research expect the Chinese Yuan to only slowly rise towards the USD, but they also see a risk for a faster appreciation. Against the background of a stronger USD towards the Euro, European exporters will benefit in 2014.

Europe on the road to the Banking Union

The European Central Bank (ECB) will take over the first pillar of the joint Banking Union, the integrated European Banking Authority (EBA) on 4November, 2014. Until then 124 banks in the Eurozone, which were defined as system relevant, will be undergoing an Asset Quality Review (AQR) and stress tests. The experts of Raiffeisen Resarch don not expect a negative impact on the markets from the AQR, but, on the contrary, expect clarity about the actual situation of these banks. Until the publication of the results in October 2014, affected banks will have the opportunity to take countermeasures against possible deficits, which is also considered as very positive by the experts. “This broad assessment of the banks will set a solid basis for future comparisons of banks. Also the high risk surcharges of the banks could then be declined moderately”, draws Brezinschek a thoroughly positive first conclusion about Europe’s road to the Banking Union.

Asset Allocation: equities stay more attractive than bonds despite higher risks

Although in 2014 liquidity will not be such a strong element on the capital markets anymore, equities will remain attractive. The overall growth recovery will have positive impacts on corporate profits. The recent stronger price increases led to more expensive evaluations, hence noteworthy temporary price decreases throughout the year are possible. However, for the coming year equities are still the first choice compared to corporate and government bonds. Stefan Maxian, Chief Analyst at Raiffeisen Centrobank, expects European equities in the mid-term to again make higher profits, after last year’s influence from the weak growth. In this environment energy, commodities and also again finance will become industry favorites over the next twelve months.

The high price of the German energy overhaul

Experts have calculated the costs of the German energy overhaul for the state budget and in the end also for the consumers at about EUR 335 billion. However, it is still not clear how the energy reserves will be stocked up. The time for new investments into the grid is short, as already in 2015 the first power plants will be taken off the grid. Also not finalized yet are the measurements for the planned reduction of the green electricity allocation. Capital markets expect for the coming year real solutions on how a sustainable energy supply can be guaranteed and will look closely at the developments.

Oil price recovers

The analysts of Raiffeisen Centrobank expect a moderate increase of the oil price up to about USD 115/barrel (2013: USD 100/barrel) in 2014. The economic growth in the advanced economies supports the demand, whereas demand from Emerging Markets is comparably low. “The recently achieved agreement about the Iranian nuclear program will only have minor impact on the oil supply, as the existing sanctions in this field remain unchanged. Furthermore, conflicts in the region, especially in Syria, will continue to influence the oil supply also in the coming year”, explains Maxian the geopolitical influences on the oil price.

Technology Trends: Internet of Things, Mobile Payments and 3D-printers

The experts of Raiffeisen Centrobank see potential for 2014 to set new trends on the technology sector. A core topic is the further development of “intelligent things” that replace the control functions of PCs (the so called “Internet of Things” or IoT). Currently IoT is widely used in logistics and consumer electronics – the fields of application are continuously expanded.

3D-printers are the second trending topic that will gain importance in 2014. This technology has the potential to revolutionize business models with small production quantities, as material usage and production time can be reduced significantly.

Also mobile payments will see a breakthrough in 2014. An interesting aspect in this field is the value chain conflict between the corporations (supplier/service provider), the telecommunication providers and banks.

„All three trends have potential for producers of sensors actuators /drive elements, micro controller and software to fundamentally revolutionize established business models”, ends Maxian the overview of capital markets themes in 2014.