Institutional Investors and the CEE Stock Exchange Group in 2012

Transcription

1 Institutional Investors and the CEE Stock Exchange Group in 2012

2 Institutional Investors and the CEE Stock Exchange Group in 2012 The top investors in the combined free float of the member exchanges of the CEE Stock Exchange Group (CEESEG), consisting of the stock exchanges of Budapest, Ljubljana, Prague, and Vienna, remain international institutional investors; they come primarily from the US and are for the first time followed by Austrian institutional shareholders, as well as investors based in UK and other European countries such as France, Norway, and Germany. Following the turbulence on European stock markets in 2011, investors shifted allocations from bonds to equities again in 2012, and when in equities, they often pick stocks with high dividend yields or stocks that show opportunities in terms of intrinsic value. Hence, international stock exchanges saw some extensive ownership shifts, a fact which is also true for CEESEG. The debt crisis and further divestments, especially by US-based institutional investors, also resulted in a rotation of investors as well as a less concentrated and more diversified ownership with new investment regions and countries such as Mexico increasing their stakes. For Austria and Slovenia in particular, a trend to more domestic institutional investment was confirmed, a fact that is not surprising as the home market bias theory suggests. In terms of investment style, the traditional strategies value and growth remain at the top, but passive investment has significantly increased. Again, institutional trends were driven mostly by buying and selling of large-cap issuers, as investors focused mostly on the Group s blue chips by taking advantage of the higher liquidity in these major stocks. Several US and UK-based institutional holders with a focus on Central and Eastern Europe (CEE) and the growth prospects of this region significantly changed their positions in their exposures in companies like Erste Group Bank, Andritz, Raiffeisen Bank International, Vienna Insurance Group, MOL, Magyar Telekom, CEZ or Krka. For smaller capitalized issuers, sector-specific institutions or funds showed interest in special investment stories to gain access to specific industry segments. As in the previous years, uncertainty regarding political, debt and governance risks were cited as the major reasons for international investors cautiousness in the most recent study which covered the annual ownership changes. These are the key messages of the updated study, Institutional Ownership of the CEE Stock Exchange Group (cut-off date: 31 December 2012), conducted on behalf of CEESEG by the market intelligence company, Ipreo. The details of the study on CEESEG reached the following conclusions as of 31 December 2012: Combined free float decreased slightly The survey analyzed the trends in investments by the top institutional investors in the free float of all listed companies of the member exchanges of the Group. The conclusions below were reached on the basis of a combination of confirmed data from forensic shareholder analysis of some of the local issuers as well as publicly available ownership data and information reported by the local exchange and other entities such as Eurostat and Efama. 2

3 The combined free float of issuers listed on the Group member exchanges continued to decrease slightly from EUR 60.3 billion in 2011 to EUR 59 billion 1 in 2012, mostly as a result of index reshuffling, adjustments to the free float capitalization of various stocks as well as the still prevailing uncertainty in the region that led to an outflow of international capital. Across the Group, an identified volume of EUR 39.2 billion or 66.4% is held by domestic and foreign institutional investors. The remaining EUR 19.8 billion or 33.6% are estimated to be held by domestic private households as well as non-financial institutions. Institutional investors in CEESEG by country as of 31 December 2012 The institutional investor base in the stocks listed on CEESEG s member exchanges breaks down as follows, according to their country of origin: Poland 2.6% Mexico 2.8% Netherlands 2.9% Germany 3.6% Norway 3.9% France 4.5% Switzerland 2.5% USA 29.7% Others 15%* UK 15.2% Austria 17.3% * Among others, Canada (1.9%), Slovenia (1.6%), Hungary (1.3%), Sweden (1.3%), Czech Republic (1.3%) Source: Ipreo, December 2012 The largest institutional investors across all exchanges continue to come from the US (29.7% from 33.6%) despite the fact that this region has been the major detractor. US-based institutions are for the first time followed by Austrian investors which have overtaken the UK by specifically upping their stakes in the home market but also in the Ljubljana Stock Exchange. Currently, Austrian investors account for 17.3% (from 9.8%), followed by the UK (15.2% from 18.8%), France (4.5% from 5.3%) as well as Norway (3.9 from 4.3%). These figures are average numbers calculated from the findings of the individual exchanges. Therefore, the results for home markets are clearly skewed towards the relevant jurisdiction, as obviously more Austrian, Hungarian, Czech or Slovenian institutions invest their money into the local stock market and thus represent a much larger stake locally compared to the CEESEG average. In addition, the varying degrees of transparency result in a slightly skewed picture of concentrated holdings in the more developed and international markets. 1) By comparison, total equity market capitalization of domestic BSE, LJSE, PSE and ATX prime issuers amounted to EUR billion at year-end 2011 and EUR billion at year-end

4 Ownership in stocks listed on CEESEG s member exchanges has seen several shifts in the last year, with prominent names rotating out of some of the largest issuers, while smaller more specialized firms have upped their investments. Some of the most prominent names invested in the Group are Capital Group, Norges Bank, the Blackrock Group, Dodge & Cox as well as Aberdeen Asset Management, State Street Global or The Vanguard Group. Interestingly, there were some different trends for exchanges within the Group as e.g. index investments globally have seen a massive increase, a trend that is also true for the Group but not for the Czech Republic where passive investors were major detractors. Several of the world s largest investment managers, Blackrock Group, AGI and Capital Group, have increased their holdings in selected issuers of the Group s member exchanges and remain among the largest investors within the CEE Stock Exchange Group. Other buying was less concentrated and occurred more selectively, mostly on a stock-picking basis by international investors, often looking for sustainable growth stories or a value/yield combination. One common theme for the largest institutional investors was political and governance risks, hence feedback was uniform regarding the growing importance of not only ESG-factors 2 in investment management decisions but also with respect to the involvement of investors (e.g. at AGMs). The majority of foreign institutional firms mentioned their intent to continue to closely monitor the situation in the CEESEG markets, especially as parts of the region have suffered downgrades and generally EU countries have seen a worsening of transparency and stability. Several investors stated that even though CEE exposure is selectively still seen as positive when it comes to market positioning, it does not seem to play as much of a role as it did a few years ago. The growth potentials for companies that already have an established track record and network in emerging markets were cited as the main reasons for the remaining higher investment levels at some of the CEESEG companies. However, for pure growth potential, institutional investors now often prefer markets such as Asia or Latin America to CEESEG. Selected emerging markets investors on the other hand, including Templeton Group, Aberdeen UK, Robeco or Raiffeisen Group, bought back into CEE issuers and increased their holdings, as they consider the current environment more as an opportunity than a threat. Generally, the study shows that the concentration of holdings managed by the large US and UK investment firms is declining, while smaller international players from different countries are starting to invest in the CEESEG markets, including countries previously not that prominent such as Mexico, Japan, New Zealand or Australia and South Africa. Analysis of investment style index investors on the rise As for most indices or issuers, the traditional investment styles growth and value remain the dominant styles used for investments in CEESEG stocks. While investment style remains a key issue in the analysis of a company s and exchange s shareholder base, with the recent volatility on the markets, the distinction between the various styles has become somewhat blurred. Significant volumes of money fled 2) ESG (Environmental, Social, Governance) 4

5 equities during the financial crisis in 2008 and 2011, seeking safe havens rather than new opportunities across securities. In 2012, investors became less risk averse, shifting allocations from bonds to equities again, and when in equities, they often picked stocks with high dividend yields or stocks with opportunities in terms of intrinsic value, which was also the case for CEESEG issuers. With respect to overall investment styles for the Group, Ipreo identified the main styles of growth and value at a very consistent level, whereas especially passive strategies have picked up, also in line with an international trend. On average, the CEESEG benchmark for investment style shows growth investors (35.7% from 35.8%) followed by value (27.1% from 28%), GARP (15.9% from 16.5%), index (14.2% from 12.8%) and other smaller styles. Ipreo further reconfirmed and identified the increased importance of extra financial or ESG-factors which come into play in several investment strategies and add an extra level of complexity to the decision-making process. Corporate governance teams at the largest investors not only have an increased influence on buying and selling of shares, but also communicate more frequently with issuers directly or before general meetings. These factors also play a role in numerous passive strategies as they can be used for so-called enhanced index strategies where issuers get excluded or over/underweighted compared to the benchmark depending on whether they meet transparency, disclosure or governance requirements. Several of the large institutional management groups have started to build and include these types of strategies into their mainstream funds and investment management process, a trend to watch out for and monitor. Portfolio turnover rate up again The portfolio turnover ratio indicates how often institutional investors switch securities within their overall portfolios on average per year. The turnover ratio of active investors (high and/or very high turnover rates) for the financial markets within the CEE Stock Exchange Group currently stands at 8.5%, after 6.6% (2011), 10.6% (2010) and even 17.9% in This development is in line with the general trend in Europe, and is probably driven by livelier trading boosted by a revived interest in equities on a global level. How ever, this ratio only partially sheds light on long-term strategic portfolio turnover, as the ratio is a slightly delayed function of buying and selling movements which happened in recent months and which were computed at investment group level. As investors have to re-position their portfolios irrespective of their fundamental views, the latest activities are likely to be reflected in the next study. General explanations for switching within portfolios are, e.g., the entry of long-term institutional investors, inclusion or exclusions from portfolios due to extra financial criteria, redemptions or market capitalization issues but also of short-term alpha-focused hedge funds 3 that profit from current price levels. 3) ESG (Environmental, Social, Governance) 5

6 In the present market environment, this ratio is scarcely indicative just like the current changes in investment style of long-term strategic portfolio switching, because investors are currently often confronted with the need to alter their positions without consideration of the fundamental aspects, as well as a growing importance of OTC and dark pool trading and limited disclosure. Currently, in several larger and developed markets in Europe, a growing portion of all trading is conducted OTC or via alternative trading platforms, therefore, Ipreo sees an increased importance of proactive outreach by IR and management to active portfolio managers 4. The predominant type of institutional investors especially international ones still have low to moderate turnover ratios, which implies that the positioning in CEESEG is generally for the long term. Very High 2.7% High 5.8% Moderate 28.4% Low 63.1% Source: Ipreo, December ) Alpha focused investors pursue an outperformance with respect to a benchmark. 4) Active investor relations and outreach will gain in importance as the current trend to an ever growing number of passive investors as well as to alternative trading will reduce the number of decision-makers that can be influenced. Active portfolio managers and analysts will therefore have a greater impact on the (fair) valuation of issuers share prices on local stock exchanges which in turn are the reference prices for alternative trading platforms. The need to fully know, understand and CEESEG AG target the right active institutional managers is therefore likely to increase in the coming years. c/o Wiener Börse AG 1014 Wien, Wallnerstraße 8 T , F info@wienerborse.at, 6