Panic grips the stock markets

Even though the peak of the epidemic in China – where it broke out in January – has now passed and the situation there is slowly returning to normal, the rest of the economic world only woke up to the threat it posed at the end of February, especially once Europe and the US became the epicentres of new cases. The situation in Italy, where mistakes early on most likely exacerbated the spread of the contagion across the continent, had the effect of dragging the indexes down in two waves, the first of which came in the last week of February, although the declines were moderate compared to what was to come. Then, at the end of February, many analysts opined that this was a good opportunity to buy and that the prospects for growth in March were still realistic. However, as they pointed out at the time, the blue chip WIG20 index was then above 1,900 points and would not be pushing its head over the 2,000 line. Just over a fortnight later, the WIG20 had actually slumped to around 1,300 points as the entire Warsaw Stock Exchange experienced the worst session in its history, with declines of more than 10 pct. Stock exchanges abroad could hardly be said to have done any better – the Dow Jones had its worst session since Black Monday in 1987, plunging even further back than at the height of the credit crunch. Stock exchanges across Europe also suffered record losses. So what exactly happened? Fears of a recession brought on by the pandemic went stratospheric as the disruption to the Chinese supply chain was compounded by European countries going into paralysis, with restrictions imposed on travelling and services and schools being shut down. By mid-March, many European countries had enforced the closure of their borders, schools, restaurants and bars as well as cancellations of all mass events and gatherings, which will obviously have a grave impact on their economies and on consumer sentiment. The basic questions that now need to be answered relate to the duration of the emergency – and based on the Asian experience, we are clearly looking at many weeks. The second issue to contend with is how governments and central banks are going to react. The economic downturn now threatens not just to bankrupt smaller companies but also entire sectors, such as tourism and events, which have overnight lost their ability to generate revenue. This, in turn, means that consumers, who have benefited from the good times in recent years (Poles included), could lose their appetite for going shopping, especially when it comes to perishable goods. It’s no wonder then that the forecast for GDP growth in 2020 has now been revised by some economists from more than 3 pct down to even less than 2 pct in around twenty days. However, uncertainty still remains, because no one can accurately guage whether the situation will have returned to normal by the summer or whether the coronavirus will rage on until the end of the year.

In the four weeks we cover in this report, the WIG and WIG20 fell by 30 pct. The main market was stricken by panic on several occasions, with the worst session in its history taking place on March 12th, when it plummeted by 13 pct (Wall Street trading was suspended for 15 minutes on the same day). The sector indices fared slightly better against this background, falling by a mere 19 pct (WIG-Construction) and 17 pct (WIG-Real Estate) over the four weeks. The relative strength of the construction index was influenced to some degree by the publication of Budimex’s 2019 listing – a company whose weight accounts for 44 pct of the index; more importantly, Budimex was also able to give an optimistic forecast for this year, slightly improving on its 2020 performance and possibly paying out a good dividend – if its shareholders so decide. The group generated almost PLN 7.6 bln in revenue and app. PLN 226 mln in net profit last year. However, the firm has also stated its concerns that Covid-19 could disrupt the supply chain, make it more difficult to recruit workers from countries such as Ukraine and increase the incidence of sick leave among existing employees. Developers have had, for some time, a measure of resistance to the stock market anxiety, but finally, the pandemonium in the second week of March pushed their indices down below where their levels of the beginning of the year. But their healthy 2019 results and the prospect of substantial dividends encouraged holding onto their shares. Following the news about Polnord and Echo Investment (both of which have had major changes in their ownership), Archicom is also making preparations for similar changes. The family-owned company has announced a review of its strategic options, which could result in either the sale of new shares to an investor or the selling of existing shares. The first option would give it the opportunity to raise funds and take advantage of the continuing health of the residential market. However, the shadow hanging over the entire economy and all its sectors, including residential development, is still there. Just how much damage to it will the coronavirus pandemic do? (Mir)

Neighbours with greater immunity

Coronavirus-induced anxiety certainly did not leave Prague or Budapest unscathed. However, as has been the case in many emerging markets, these trading floors proved to be a little more resilient than the Warsaw Stock Exchange, which is, however, the largest and most liquid in the region. Since the beginning of the year, the BUX and PX50 have gone down 25 pct, as opposed to the 35 pct lost by the WIG20.