Sub-indexes in a tailspin

The first quarter of 2013 was not a profitable one for the Warsaw stock exchange. For the WIG20 these were the worst three months for over two years. The situation is somewhat perplexing because investors have been showing a lot of interest in buying shares across the Atlantic and in Western Europe. The macro-economic data for the country provides some explanation, as this shows that we have been scraping the bottom of the economic cycle since Q4 2012. Perhaps investors had been counting on a reprise of the situation in 2009, when the Polish economy pleasantly surprised us, earning it the title of Europe's "Green Island". But at the time we had a defence mechanism in the form of a weak złoty propping up exports. This is why the ?2013 slowdown, with a relatively strong złoty, is more painful and has already translated into higher unemployment (14.5 pct) and weaker company results (business profits in 2012 decreased by 21 pct). In addition, a question mark has arisen over the reaction of local indexes if there is another adjustment on more developed markets- in the past the WSE has rarely shown much more resistance to decreases abroad. However, the trading floors in Germany, the UK and the US have performed much better than the Polish stock exchange, and especially so across the Atlantic - since the Cypriot crisis has not had any influence on the moods of investors over there. However, in Europe the crisis affecting this small nation has reminded us of the threat posed by the huge debt burdens of some eurozone countries. Once again, it has turned out that a banking sector that is too large compared to the size of the economy can turn into a ticking time-bomb. Despite the fact that Cyprus' significance is marginal for the economy of the eurozone, the psychological effect should not be underestimated. Firstly, the number of countries impacted by this additional debt/financial crisis is growing; secondly, the proposed plan for bailing out Cyprus (involving imposing taxes on deposits) has intensified concerns, which could add to the instability of the financial system in the form of an outflow of bank deposits from the countries affected. The travails of this small country have temporarily eclipsed the hard data of the European economies - both in negative cases (the weakening condition of France) and positive ones, e.g. the UK.
Meanwhile, on the WSE the end of March was marked by huge losses. The WIG-Budownictwo sector index lost more than 10 pct in four weeks, and falling to the levels of last November. The share prices of all the companies on our list fell. The sub-index was being pulled down by Polimex, which lost over a third of its value. What had hurt the company so badly was a negative recommendation by the investment committee of PGE for the extension project of the Elektrownia Opole power station - the almost PLN 6 bln contract for the construction of two turbine buildings was awarded to a consortium of Polimex, Rafako and Mostostal Warszawa. In addition, a few days after the publication of its 2012 results (with losses registered of PLN 1.1 bln), Robert Oppenheim, the president of the company, resigned. The price of PBG's shares also steeply declined after the company reported a loss of PLN 2.3 bln. Energomontaż-Południe, part of the PBG group, registered a loss of nearly PLN 350 mln, prompting its share price to slump by more than 40 pct over the month. PBG has announced that it will make arrangements with its creditors in order to continue operating. Such troubles are not only affecting construction companies. Even though WIG-Deweloperzy slipped back by "a mere" 3 pct, considerable reductions were evident in the share prices of individual companies. Gant, which lost nearly 30 pct, is experiencing some problems of its own: an agreement on the restructuring of its debt was signed at the end of March in which its creditors acquired shares in the company for a total of PLN 30 mln. The company is now planning to drastically cut its costs and rebuild its market position. Gant's apartment sales in Q1, which were 70 pct down on the same period a year earlier, testified to the considerable weakening of its standing. According to some analysts the clouds forming above Gant also had a negative influence on some of the other representatives of the industry - Polnord, among others.

BUX the star of the region
The Prague stock exchange suffered the poorest results in the region, as the PX index lost 3.6 pct over the month. The strongest was the Budapest stock exchange, where the BUX only decreased by 0.5 pct. The WIG in Warsaw lost 1.1 pct. The BUX also turned out to be stronger than the Warsaw trading floor in Q1, when it only lost 0.6 pct. However, at the beginning of April the financial markets in Hungary were partly being fuelled by the announcement that the?Hungarian central bank was planning to dip into its currency reserves to launch a USD 2 bln economic revival programme.