PL

Summer shrinkages

Stock market report
The WIG-20 sank to its lowest level since November 2018 in mid-August, as worries about the trade war and the weakening European economy consumed the global markets. But the sector indices performed better this time. WIG-Real Estate even recorded a slight increase in this unfriendly environment

The better than expected data for US economic growth (2.1 pct in Q2, instead of the 1.8 pct expected) did nothing to prevent the US central bank from lowering rates (by 0.25 percentage points). The chair of the Federal Reserve tried to calm fears by insisting that this reduction did not have to be the beginning of a series, but his words had the opposite impact. The US economy is still in excellent shape, as reflected by the lowest unemployment figures for 50 years; but on the other hand, the nation’s executive power lies with Donald Trump, who wanted a full percentage point reduction in the hope that low interest rates would boost the economy and his re-election chances. The uncertainty surrounding the US-China trade war, meanwhile, is continuing to cause ripples across the global economy. The backdrop to the recent ‘peace talks’ in Shanghai was the latest data on the depreciating value of the trade between the two countries and China’s sluggish economic growth, which is at its lowest in 27 years. The ongoing negotiations did not prevent the American president from announcing the imposition of more duties on goods starting from September 2019. The Chinese are no longer buying American crops and may also limit oil purchases in retaliation for US punitive action against Huawei. The situation in the largest European economies has also been deteriorating – particularly in Germany, where industrial production has been shrinking back, as have the leading indicators and indices, thus reflecting the mood in the domestic business sector (the most pessimistic since 2013). These negative feelings have also been transmitted to Polish companies, which are closely linked to the key economy of the eurozone.

Some of the symptoms of the deteriorating macroeconomic situation can already be seen in the slowing construction and assembly production sectors (where annual output has fallen for the first time since February 2017) – but this still came as something of a shock to economists. With lower production growth and salary increases tailing off, the picture we are presented with, while not one of an economy that’s grinding to a halt, does point to it stabilising and coming out of a period of continuous growth. The construction potential of projects being carried out and planned in Poland can be counted in the hundreds of billions, but such figures diverge widely from the profits construction firms are currently able to generate. The best snapshot of this is given by the situation of stock market giant Budimex. Despite having a portfolio of orders worth PLN 11 bln it recorded a 44 pct decrease in profits in H1, while its gross margin from orders decreased to 5 pct from 7 pct a year ago. The order portfolio of Torpol – one of the stars of the companies currently taking on railway infrastructure projects – has also been growing. The company has recently signed two mega-agreements with the Polish State Railways [PKP] worth a total of PLN 1.4 bln. The company’s margins are also growing, and investors are recognising this – in the summer of 2018 the company’s price was PLN 3, but today it is PLN 7.5. Meanwhile, the fate of troubled Elektrobudowa has started to crystallise – a new issue of shares worth up to PLN 22 mln is to be acquired by Zarmen, which has submitted an application to the competition authorities to approve the transaction. Another construction company, meanwhile, Mostostal Warszawa, has set its course for pulling out of the stock exchange. At the beginning of July its strategic investor, Spanish group Acciona, announced its intention to buy all the company’s shares and take it out of the WSE. The Spaniards then increased the original price of the call (from PLN 3.45 to PLN 4.5), helping to bring its stake up to 60 pct in the first stage of the call. In the second stage, the same price was offered and the company then had to wait until August 21st for shareholders to respond. Another harvest is underway in the residential sector – after listed companies in the sector sold 3.5 pct fewer apartments (according to ‘Parkiet’). However, the levels of sales recorded and the prospects for the market remain very optimistic. Of the new factors the market faces, accelerating inflation, which is eating away the savings on deposits, may turn out to be a stimulus to invest in housing. The number of residential construction projects started in the first six months of 2019 increased by 0.3 pct. The results of individual companies vary, depending on the attractiveness of the product range of the individual developers. Apart from some impressive annual growth (e.g. Victoria House, with 98 pct), there have also been 70 pct decreases (e.g. Lokum Developer). (Mir)

Envious of the neighbours

The Warsaw Stock Exchange’s performance has been distinctly poor compared to the other two main bourses in the region this time around. In the period from the end of June to mid-August, the BUX in Hungary registered an increase close to 1 pct, while the PX50 in the Czech Republic decreased by 2 pct. Both indices are still in the green when calculated from the beginning of the year (around 5 pct) whereas the WIG-20 has lost more than 7 pct.

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