The return of the king

In such a situation the uncertainties on the WSE – mainly the impact of government policy on Polish blue chips and the decline in trading on the stock exchange – have left the WIG20 languishing at its long-term minimum of around 1,700 points. Meanwhile, global financial markets are bracing themselves for the result of the US presidential elections in early November. A Donald Trump victory might spark panic across the world’s bourses, judging by the reaction to the Brexit referendum in June. The closer we get to the vote, and the more pre-election polls show how possible a victory for the economically unpredictable Trump is, the more volatile the stock exchanges will be. The insecurity factor hanging over the US presidential elections has led to the restoration of ‘cash as king’ as investors – and not only those across the pond – are increasingly approaching the purchases of large stakes in companies with greater caution. And this is true despite healthy economic data and the recent decisions of central banks. On the one hand, the European Central Bank has not ended quantative easing, which would have helped the bourses; on the other, the expected rise in the cost of money in the US may have to be put off because of the publication of mixed macro data. This is now less certain to happen this year and if it does take place, it would be in December at the earliest. This has provided something of a fillip for investors, while additionally proposed caps on oil production by OPEC countries could also have a particularly positive impact on emerging markets and their stock exchanges, as this should increase oil prices and boost their economies. The ultimate decisions will be taken in November. With such mixed signals and the present state of anticipation, the trading floors remain relatively stable. It is a similar story in Poland, even though stability in this case means the WIG20 hovering around its historic low, having lost another 2 pct over the month, while the WSE itself was among the weakest performing stock exchanges globally in September. The total balance for investors – particularly the largest ones – was far from the best we have seen. The situation was slightly better for medium-sized companies, who are generally less impacted by political factors. With the plans to levy additional taxes on power companies and the looming prospect of the passing of the Swiss franc act, the pricing of two sectors (banking and power) has clearly been weakened. Thus it comes as no surprise that if we take a look at the yields from individual sector indices since the beginning of 2016, the power industry looks bleak (app. 1.5 pct) and with the banks it was only possible to earn 1 pct. Over the month it was the raw materials sector that outperformed the others. The segments that interest us – construction and development – provided 3 pct and 15 pct yields respectively. Unfortunately, the prospects are not very good – the new investment needed to drive the economy is still not there and so growth has become more and more dependent on consumption stimulated by the 500+ programme and the low unemployment rate. In August the fall in construction production amounted to 20 pct y-o-y with not everything being explicable by delays in road construction and the modernisation of rail track or the suspension of a number of projects. According to PKO BP, the production value of the construction sector has not been this low for nine years. Nonetheless, several construction companies are still managing to boast record order portfolios and the government has also recently announced a raft of public tenders.

Perhaps this is why WIG-Construction has done rather better over the last four weeks compared to the wider market indices. It gained 4 pct – as the WIG stagnated and the WIG20 suffered a 2 pct decline. However, this was still not as good as WIG Developers, which grew by almost 5 pct. Trakcja stands out among construction companies with its double-digit growth, while ZUE and Torpol saw price increases close to 10 pct in line with forecasts from MBank, which recommended as its top picks those construction companies involved in the modernisation of the railways. Apart from these firms, the bank also praised Erbud and Budimex. More companies boasted double-digit growth among leading developers. Dom Development gained more than 10 pct and shares in Echo Investment were up by almost 18 pct, as it unveiled its ambitious plans for the 6.5 ha Warsaw Brewery site. The residential sector is still bouyant, so the growth in Echo’s share price could be related to this. Investors also took a liking to its new strategy announced in September, to focus the company solely on its development activities while also promising to pay out a regular dividend.

Growth unseen since May

The beginning of autumn was certainly a better time in Hungary and the Czech Republic than in Warsaw. The PX50 index rose by 6 pct, beating all its increases over the last few months and reaching levels unseen in Prague since May. The growth in Budapest was lower: the BUX increased by less than 2 pct moving it close to 29,000 points– its historic high level of 2007, before the financial crisis. By comparison, that year the WIG20 was at a level of almost 4,000 points, whereas it is down to 1,700 points now.