Growth is all around us

At a time when analysts all over the world are wondering whether the current historic peaks on the global stock exchanges signal a repeat of the calamitous speculative bubble of 2007/2008, the indexes in Poland have been rather more static. The WIG20, which has reached 2,500 points, is still 1,500 points lower than in the summer of 2007. Why? There are two reasons: the first is the weakness of the economy. With the exception of the financial sector, the economy in Poland is experiencing its most serious slowdown in the last twelve years. Even though there is much that points to the slowdown having bottomed out in H1 (when there was a GDP increase of only 0.5 pct y-o-y), a quick return to growth of 3–4 pct is clearly not on the cards. According to preliminary estimates, GDP grew by 0.8 pct in Q2. The second factor preying on the minds of investors is the issue of open pension funds. The day after the government announced its proposals for resolving this issue, the Warsaw Stock Exchange plummeted, while globally indexes remained undisturbed. On this day, June 28th, the WIG was actually the worst index in the world. Investors’ reactions were perhaps slightly exaggerated, but this can be put down to open pension funds being an important player in the capital markets (they currently hold shares worth app. PLN 110 bln and since the beginning of the year have bought nearly PLN 15 bln of securities). Those who thought that this would be the end of the matter turned out to have jumped the gun. The actual measures to be taken will only be revealed once the summer has ended. This issue combined with the state of the Polish economy has overshadowed more positive reports from abroad. The general revival elsewhere in Europe is increasingly evident – the forward indicators in the eurozone exceeded 50 points. But the WSE is not reflecting this improvement just yet. The WIG admittedly increased by over 3 pct, but the WIG20 actually decreased by 1.6 pct and then fluctuated around the level of 2,500 points. This time the developers’ sub-index proved to be the weakest with a decrease of 3.2 pct, while WIG-Construction gained nearly 6 pct. Budimex performed particularly impressively, reaching a share price of almost PLN 100 per unit. In Q2 the company registered a profit of PLN 33 mln, confirming its healthy liquidity. Its order portfolio (which was worth PLN 5.4 bln at the end of June) turned out to be better than it had been at the end of March (PLN 4.8 bln). However, this is one of only a small number of companies currently rated by analysts as sector favourites. Others include Erbud and Unibep, both of which have registered double-digit increases in the last two months. Their polar opposites on the list of construction firms includes Polimex, which lost over 60 pct, and PBG, with a loss of over 50 pct. Polimex’s creditors have once again agreed to extend the period for it to meet the obligations of its restructuring agreement, this time until the August 31st. In 2014 the company is aiming to reduce its debts to close to zero before finally moving back into the black in 2015. PB, meanwhile, is negotiating an arrangement which, according to unofficial sources, involves the repayment of its debts in cash as well as their conversion into shares. The number of companies that have become mired in deeper problems has been growing: Budopol filed for bankruptcy open to arrangements at the end of July. This in turn weakened the position of the company’s main shareholder – Gant. In addition, Gant has been forced to extend its bond redemption deadlines. Shareholders of the company are to decide on a possible new share issue, even though according to analysts Gant’s situation remains precarious due to its high short-term liabilities, which block the prospect of taking on any new projects. Polnord is also planning to issue shares, even though the share price of the company is indicating that investors are not warming to the developer’s plans. However, the share prices of smaller developers, such as Ronson, have been growing. And a new player has appeared on the WSE – Platinum Properties, which raised PLN 7.5 mln in its IPO. The company made a name for itself for having the most successful debut on the NewConnect market, when it raised PLN 250 mln in a private issue in 2011.


Neighbours feeling better
The stock exchange in Prague has been steadily growing throughout the summer, effectively making up for falls in May and the first half of June. It has gained a total of more than 6 pct in two months. Investors on this bourse seem unperturbed by the recent shrinkage of the economy, which has suffered a y-o-y decrease of 1.2 pct. They also appear to be unconcerned about the current political turbulence due to the failure to form a government, which will most probably result in fresh elections. The BUX, on the other hand, performed in a similar manner to the WIG20, slipping by 3.5 pct. The Hungarian economy grew by 0.5 pct in Q2 and analysts are forecasting further improvement, which in turn could lead to favourable conditions on the Budapest stock exchange.