Concepts and Methods Concepts and Methods

Concepts and Methods

Money market rates

  • Libor or Euribor rates with overnight maturities of up to one year
  • The most important influencing factor is the monetary policy of the respective central bank of a currency area, which tries to control the interest rates on the money market with its key interest rates and monetary policy operations.
  • Depending on the currency area, it depends on the central bank’s mandate which influencing factors are particularly important for interest rates on the money market
  • Common mandates are: Ensuring price stability, contributing to economic management, exchange rate targets,

The forecast of money market rates is based on expert opinion. In addition, statistical models of a central bank’s reaction function (modified Taylor rule) may be used.

Important factors influencing the monetary policy of a central bank and thus the development of interest rates on the money market are:

  • Price developments, price expectations
  • monetary aggregates, credit developments
  • Economic momentum, economic outlook
  • Long-term real economic development
  • Labor market, wages
  • Exchange rate development
  • Interest rate of a reserve currency
  • Political influences

Market yields on government bonds

  • Market yields (= secondary market yields, average interest rates) of benchmark government bonds; the most significant remaining maturities are: 2Y, 5Y, 10Y, 30Y
  • The nominal market yield of a bond contains the following elements, which may vary: Inflation compensation, real interest for temporary consumption foregone, (risk) premiums (maturity premium, risk premiums: Credit rating, inflation surprises, liquidity premium for market or specific bond, exchange rate uncertainty).

Expert opinion is used to forecast government bond yields. In addition, statistical models may be used.

Important factors influencing the development of government bond yields are:

  • Monetary policy
  • Money market rates, expectations of future money market rates
  • Price development, price expectations, indicators for price development
  • Economic momentum, economic outlook
  • Long-term real economic development
  • Exchange rate development, exchange rate outlook
  • Government bond yields of a reserve currency
  • General risk appetite, risk environment, financial market volatilities, equity markets
  • Political influences
  • Credit rating, rating outlook
  • Budget and debt development of the respective state
  • Legal framework
  • Demographic development, change in saving habits

Stock index analysis procedure:
This is an assessment procedure that analyzes different data (macroeconomic data, earnings growth estimates, valuation ratios, etc.) at an aggregate level and draws conclusions for the development of stock indices.

Classification of recommendations
The contents of the website are for informational purposes only and are not an offer to buy or sell. In addition, the recommendation categories listed below have the following meaning depending on the investment security:

Concepts and Methods Shares
(a) For Austrian, Central and Eastern European and Russian equities: (until 23.04.2017)

Buy: expected performance > 15 %
(for stocks with high volatility > 20 %)
(for stocks with low volatility > 10 %)

Hold: expected performance from 0 % to +15 %.
(for stocks with high volatility 0 % to +20 %)
(for stocks with low volatility 0 % to +10 %)

Underweight: expected performance 0 % to -10 %.

Sell: expected negative performance of more than -10 %.

Recommendation suspended: The previous recommendation and the previous price target (if any) are cancelled by the suspension of the recommendation.

(a) For Austrian, Central and Eastern European and Russian equities: (as of 04/24/2017)

Concepts and methods used in the production of financial analyses

Investment Recommendations: Investment recommendations are based on expected “total returns” (price return plus dividend income) within a period of 12 months and from the date the investment recommendation was made.

Expected performance of at least 15% (for stocks with high volatility).
Expected performance of at least 10% (for stocks with low and medium volatility).

Expected performance of 0% to 15% (for stocks with high volatility.
Expected performance of 0 % to 10 % (for stocks with low and medium volatility

Expected negative performance

The price targets relate to a 12-month period and are derived from the use of commonly used valuation models such as the discounted cash flow (DCF) model, dividend discount growth model, relative valuation methods such as the use of valuation multiples of peer companies, the use of target multiples, sum-of-the-parts valuations (separate valuation of the individual business segments) or return on equity.