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edition 9 (223)
September 2017
Stock market report

Profits from the property players

Ten years after the financial crisis first broke, the main index of the Warsaw Stock Exchange – the WIG – is gradually returning to its historic peak. This is only happening thanks to the boom on the other trading floors of emerging markets, which is being driven by the weakening dollar and increases in the prices of raw materials. However, the midsummer turned out to be a weaker period for the indexes of construction companies

There is now little doubt that in the world’s largest economies the situation is much more positive than it has been. This is shown by the macroeconomic data, the assessments of central banks as well as companies’ results – particularly those across the Atlantic. In the US the slowdown at the beginning of the year turned out to be a temporary phenomenon, as partial data coming from China confirms that growth is accelerating – but the greatest increases were evident on the smaller, emerging markets. This growth is being driven by the weaker dollar as well as the rising prices of raw materials. As a result, stock exchanges in countries such as Korea, Brazil or Chile are performing better than those of developed markets. But even the latter are doing rather well, because in July the S&P500 broke another record and the Nasdaq grew by almost 3.5 pct in August (more than the ‘emerging’ WIG or WIG20). The stock markets have not been impacted, at least for now, by the kind of geopolitical tensions that have not been seen for decades. I am referring, of course, to the sharp exchanges of bluster between North Korea and the US, which have included threats of nuclear strikes. However, for now this tension has only resulted in a slowdown in growth, and there were still no signs of panic on the bourses in the middle of August. Analysts expect that the strong performances for the global stock exchanges will be maintained until the end of the end of the year. Furthermore, the boom on the emerging markets, such as in Poland’s case, has also pushed political tensions into the background – and in spite of the summer holidays there have been no shortage of these. The conflict over changes to the Polish judiciary, which was also widely reported abroad, did shake investors’ confidence somewhat, as this put the existence of economic rules based on independent judicial system into question at a time when the issues of a political solution for mortgages denominated in Swiss francs and the postponed reform (i.e. liquidation) of open pension funds remain unresolved. The latter issue is of fundamental significance, particularly because it could have an impact on the influx of new funds to the Warsaw Stock Exchange, where some really large debuts were seen in July after a number of quiet quarters. The entry of mobile phone operator Play onto the Warsaw trading floor in particular caused a stir due to the unusually high value of the flotation (PLN 4.4 bln – the largest offer on the WSE since 2011). And together with the IPOs of Dino supermarkets (worth PLN 1.7 bln) and financial institution GetBack (PLN 0.7 bln), this went some way towards improving the battered image of the Warsaw Stock Exchange. While we are on the subject of debuts, it’s worth mentioning that real estate agency website owner Morizon switched from Warsaw’s New Connect market to the main floor. The company’s aim is to create a ‘one-stop-shop’ for the real estate sector, i.e. a place where clients will be able to choose, buy and finance their selected property.

It is under these conditions that the WIG index is approaching levels unseen on the WSE for almost a decade. For the WIG20 the last six weeks of the summer holidays have seen a slight improvement (up by almost 5 pct, as opposed to the 3 pct increase for the WIG), but it is still only at the level of 2,430 points (having been at 4,000 points in 2007) – although it has to be said that blue chip index reaching this level has justified the most optimistic forecasts made at the beginning of the year. The sector indexes were rather weaker, particularly the construction index, which has been clearly short of breath after a very good beginning to the year. As a result, its sibling index WIG-Real Estate was able to overtake it in terms of its rates of return since the beginning of the year (24 pct, compared to 14 pct for the construction index). The steady and gradual growth of prices on the WSE developers’ index was reflected in the hard sales data (apartment sales having increased by almost 20 pct in Q2 2017). The largest price growth since the beginning of the year (app. 40–50 pct) has been recorded by such firms as Lokum, Dom Development and Atal. Healthy rates of return were also provided by commercial developers, such as Echo and GTC. And as for construction firms, it is worth explaining why the stock of PBG suddenly plunged. This was due to an agreement concluded with its creditors for outstanding payments to be converted into new shares with a very low issue price (PLN 0.02). As a result, the market was flooded with cheap new shares. PBG’s price fell abruptly accompanied by a high share turnover (which was also reflected on the turnover chart). We will take a closer look at the effects of the publication of H1 results next month.

Summer surge

While the WIG struggles towards its peak of ten years ago and the WIG20 is still only half-way towards this goal, the BUX has already exceeded its 2007 level by 21 pct. However, the summer weeks have seen a similar scale of growth in Budapest as in Warsaw (3.6 pct). The PX50 index in Prague registered an increase of almost 5 pct, breaking the 1,000-point barrier. The WIG20, however, remains the index with the highest rate of return since the beginning of the year.

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