PL

Things are still good... despite everything

Stock market report
The trade war between the US and China continues to rumble on and cast a shadow over the global stock exchanges, reinforcing fears of a downturn. Neither the main nor the sector indexes in Poland have been making any great strides, but the economy is still doing well and it is developers rather than the construction sector who are reaping the benefits

More duties were imposed on goods traded between the US and China in September. The American government has already announced that a similar move to put tariffs on electronics will take place before Christmas. China, naturally, has been retaliating, and despite assurances of a willingness to resolve some of the issues the situation has been exacerbated rather than alleviated, while this in turn has been having an increasing impact on the global economy and the mood of investors. Disincentives to buy on the stock exchanges have also included the spectre of protests in Hong Kong and the uncertainty over this year’s elections in Argentina, which is already mired in an economic crisis. After the first round of the presidential election, the increasing likelihood that the incumbent and darling of the markets Mauricio Macri would be unseated in the final vote in October, triggered a violent sell off in the country, where one daily index plummeted by almost 40 pct! But emotions have also been stirred up by a more familiar saga. Boris Johnson, the actual author of the ‘successful’ EU Leave vote, has taken up his residency in 10 Downing Street, thus fuelling fears of a hard Brexit in the autumn and the potential chaos that could ensue. This has certainly not helped investors to maintain their sang froid. All the more so because in addition to his accession to the UK premiership being thrown into the emotional cauldron that is Brexit, more signals have been coming in about the deteriorating economic situation in Europe. In Germany, the ZEW index, which reflects business sentiment, has fallen to its lowest level since 2011. Meanwhile, new export orders have been the lowest since 2009. A mild slowdown is also taking place in Poland. As the data from the summer trickles into the public domain, economists have been lowering their forecasts. However, the predicted GDP growth for the year still comes to more than 4 pct. The October elections are also adding to the uncertainty. The ruling Law and Justice party is proposing a very expensive raft of election promises, while the opposition is not lagging behind in the competition to offer such incentives. The ruling party has spooked the markets by pledging minimum wage increases and a potential increase in social security contributions. Since August the Polish stock exchange has stagnated, while the monthly index movement has been minimal. Compared to other emerging market indexes, the WIG20 has been doing very poorly, suffering a 7 pct decrease (along with the WIG, with a fall almost 2 pct), thus joining Argentina among the small group of trading floors with negative rates of return. The performance of the sector indices has also been sluggish in recent weeks, with fluctuations of around 2 pct.

The economic woes on the horizon have yet to impact the results of developers. GTC was among the commercial developers still publishing higher net profits, but admittedly the market conditions in the CEE countries it operates in are still highly favourable for its activities: the take-up in the largest cities of our region, whether this is in Sofia, Budapest or Warsaw, is continuing to rise. Residential developers have been surpassing analysts’ expectations even more. Dom Development recorded a net profit of PLN 31 mln in Q2 – and although the result was weaker than a year earlier, it was still triple the market forecasts. This raised the company’s stock price to levels unseen in the last twelve years. Marvipol has also been able to boast good results, as its operating profit in H1 turned out to be 78 pct higher than a year ago. Warehouse activity contributed more to the growth in this case, but the number of apartments sold also increased (by more than 20 pct).

Turning to the construction sector, a crucial period lies ahead for Elektrobudowa. Its share price has been steadily decreasing since the beginning of the year, but has now stabilised, perhaps due to the crystallising prospect of being able to raise new capital as well as the emergence of a potential investor in the company. Elektrobudowa is planning two share issues worth around PLN 70 mln. Budimex, meanwhile, has bounced back. Against a background of meagre changes in the prices of shares of other companies, it managed an increase of 12 pct in its share prices despite weaker company results, which, however, are likely to have been anticipated by the market. Its H1 profit fell by more than 40 pct, evidently through margins being pushed down by rising costs. Budimex’s order portfolio of more than PLN 11 bln, however, still looks impressive. Polimex-Mostostal, on the other hand, has seen an improvement in its results. After restructuring the company is now increasing its revenues and is aiming for a positive net income for the year (after recording losses of PLN 12.1 mln in Q2). (Mir)

New tool

Central and Eastern European stock market observers now have another tool for gauging the moods on the Polish, Czech, Slovakian, Hungarian, Croatian, Romanian and Slovenian bourses. The WSE has started publishing the CEE Plus index, which we will now also be following closely. For the moment, it has to be noted that along with the poor performance of the WIG20, Budapest’s BUX did not perform any better, losing around 2 pct – although it remains in the green when calculated from the beginning of the year. In contrast, the PX50 in Prague has recorded a slight increase (2 pct) over the five weeks covered by this article, thus bringing the growth in the index since the beginning of the year up to more than 6 pct.

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