VZCZCXRO3378
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHVI #0716/01 0681123
ZNR UUUUU ZZH
R 091123Z MAR 06
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 2654
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 VIENNA 000716 
 
SIPDIS 
 
SIPDIS 
 
PASS TREASURY FOR OASIA/ICB/VIMAL ATUKORALA 
TREASURY ALSO FOR OCC/EILEEN SIEGEL 
TREASURY ALSO PASS FEDERAL RESERVE 
USDOC PASS TO OITA 
USDOC FOR 4212/MAC/EUR/OWE/PDACHER 
 
E.O. 12958: N/A 
TAGS: EFIN AU
SUBJECT: THE VIENNA STOCK EXCHANGE - A BOOM THAT COULD 
LAST 
 
REFS:   A) VIENNA 0006  B) 05 VIENNA 1026 
 
Summary 
------- 
 
¶1.  The Vienna Stock Exchange (VSE) is enjoying an 
extended boom phase.  The VSE is up 51% in 2005, 219% 
over the period 2003 to 2005, and 242% from the 2001-2005 
period.  The VSE has been one of the best performing 
exchanges worldwide.  On February 21, 2006, the Austrian 
Traded Index (ATX) hit a new all-time high -- up 13% from 
January 1.  Foreign investment firms are a major 
component of the VSE, representing some 54.5% of trading 
volume.  Despite the stock market boom, only about 7% of 
Austrians hold shares.  The boom should continue, as most 
of the factors that contributed to current growth are 
still present: strong blue chip fundamentals; favorable 
price-earnings ratios; anticipated privatizations; and 
heavy exposure in the high growth areas of Southeastern 
Europe and Central and Eastern Europe (SEE/CEE).  The VSE 
hopes to form a broader "Central European Stock Exchange" 
alliance with several SEE/CEE exchanges, but the Warsaw 
Stock Exchange's recent decision not to participate in 
the VSE alliance represented a major setback.  End 
Summary. 
 
 
Vienna Stock Exchange - New Records in 2005 and 2006 
--------------------------------------------- ------- 
 
¶2.  In 2005, the Vienna Stock Exchange (VSE) boomed as 
one of the best performing exchanges worldwide.  In June 
2005, the Austrian Traded Index (ATX), which represents 
the continuously traded blue chips with the highest 
liquidity and market capitalization, for the first time 
surpassed 3,000 points.  This came just one year after it 
had surpassed the 2,000 point mark in July 2004.  At the 
end of 2005, it reached a new all-time high of 3,677.03 
and closed 50.8% higher than at the end of 2004.  The ATX 
has continued to register impressive gains, breaking 
through the 4,000 mark on January 30 and reaching another 
new all-time high on February 21 at 4,158.59.  Since 
January 1, the VSE has been up 13%, and it has outpaced 
the Dow Jones Industrial Average index of New York Stock 
Exchange (up 3.9% since January 1) and the blue-chip 
index (DAX) of the German Stock Exchange group (up 7.3%). 
 
¶3.  Except for a small boom in 1997/98, the VSE 
experienced lackluster growth for most of the post-World 
War II period.  However, in 2001, growth began to pick up 
noticeably.  The VSE entered a boom phase in 2003.  A 
comparison of the ATX with major stock markets underlines 
the VSE's top performance in 2005 and over the last 3-5 
years.  In 2005, the ATX rose 51%, the Japanese Nikkei- 
225 index 40%, the DAX 27% and London's FTSE-100 index 
16%, while the Dow Jones was flat (-0.6%).  During 2003- 
2005, the ATX rose 219%, the DAX 88% and the Dow Jones 
29%.  Over the last five years, the ATX rose 242%, the 
DAX dropped 15%, and the Dow Jones was flat(-0.6%). 
 
 
Market Capitalization Triples in 3 Years 
---------------------------------------- 
 
¶4.  At year-end 2005, the market capitalization of listed 
domestic shares reached Euro 105.0 billion ($131.2 
billion), equal to 43% of GDP.  Market capitalization was 
thus up 66% from year-end 2004 and more than three times 
as high as at year-end 2002.  The average dividend yield 
for domestic shares in 2005 was 1.89%.  The VSE lists 83 
domestic shares, 13 foreign shares, and 620 participation 
certificates, dividend rights certificates, and warrants. 
In 2005, the VSE recorded six new listings of domestic 
shares, which represented a market capitalization of Euro 
6.2 billion ($7.8 billion).  The largest listing was that 
of Raiffeisen International (RIAG), a holding of 
Raiffeisen Zentralbank (RZB), Austria's third largest 
banking group.  The RIAG listing was Austria's largest 
IPO ever and stemmed from RZB's strategy of outsourcing 
its significant business in Southeastern Europe and 
Central and Eastern Europe (SEE/CEE) to RIAG. 
 
 
Austrians Still Not a Nation of Shareholders 
-------------------------------------------- 
 
VIENNA 00000716  002 OF 002 
 
 
 
¶5.  Despite the stock market boom, only about 7% of 
Austrians hold shares.  Savings accounts are still the 
preferred investment vehicle, although interest yields in 
recent years have often not kept pace with the inflation 
rate.  Foreign investment firms have also discovered the 
VSE.  At year-end 2005, international members accounted 
for some 54.5% of trading volume.  Only six years ago, 
the share of foreign members in total trading volume was 
practically zero. 
 
 
Can the Boom Continue? 
---------------------- 
 
¶6.  Many of the factors that contributed to VSE's rapid 
growth are still relevant, so there is reason to expect 
the boom could continue.  Michael Buhl, VSE Management 
Board Member, argues that because 80% of ATX companies 
are active in SEE/CEE, dynamic economic growth in the 
region will continue to propel the VSE.  The impressive 
blue chips that dominate the VSE seem to have continued 
potential.  Price-earnings ratios are still favorable. 
Domestically, there exists considerable potential from 
the untapped savings of private Austrian investors. 
Austria has enormous IPO potential and investors expect 
interesting new listings, as the GoA continues with 
ongoing privatizations.  For example, the GoA plans an 
IPO for the state postal company in mid-2005. 
 
 
The Vienna Stock Exchange's Internationalization Efforts 
--------------------------------------------- ----------- 
 
¶7.  The VSE initiated a program of "internationalization" 
in 1999, when it connected its cash market to Xetra, the 
Frankfurt Stock Exchange's electronic trading system.  In 
March 2005, an Austrian consortium, led by the VSE, 
acquired a majority share in the Budapest Stock Exchange 
(BSE).  The BSE acquisition signaled the VSE's initial 
efforts to form a broader "Central European Stock 
Exchange" alliance with several SEE/CEE exchanges 
(reftels).  However, the Warsaw Stock Exchange recently 
announced it would not participate in the alliance.  The 
VSE is still pursuing a regional alliance, signing a 
cooperation agreement with the Zagreb Stock Exchange in 
December 2005.  Since February 15, the VSE has published 
a Southeast Europe Traded Index (SETX), which contains 
the 15 largest companies listed on the stock exchanges of 
Bucharest, Ljubljana, Zagreb and Sofia.  The VSE will 
closely monitor the plans of the German Stock Exchange to 
merge with Euronext. 
 
MCCAW