In the shadow of conflict

The first March session finished with declines of around 5 pct on the Warsaw stock exchange. The market in Moscow, meanwhile, was losing value at a double-digit rate as the billions of dollars being withdrawn from the Russian market were anxiously calculated. The annexation of Crimea has encouraged investors to turn their faces even further away from risky currencies – including the złoty. The ruble is now trading at its lowest levels in history. The situation was slightly different across the ocean. Although the reaction to the annexation of Crimea was nervous, just a few days later the New York S&P 500 index hit record levels – making all too apparent the difference between the Polish and American stock exchanges. The former has still not reached its pre-crisis levels (the WIG index needs to rise by app. 20 pct to reach that peak), whereas the latter keeps on breaking its own records thanks to the continuing intervention of the US Federal Reserve, as it pumps cash into the economy. The promising data from the European economies, confirming the improvement in the situation in EU countries, and the very optimistic inflation forecasts for Poland (thanks to which interest rates can stay low, so the attractiveness of investing in risky instruments such as shares remains high) has also not been enough to improve the mood on the Polish stock exchange considerably. The growth that had lasted from mid-January until mid-February (when the WIG 20 index approached 2,600 points and the WIG closed in on 54,000 points) was stopped in its tracks at the beginning of March. The reaction to the Ukrainian situation was compounded by anxiety over the macroeconomic conditions on the emerging markets and a slew of worrying figures from China (including such significant data as those for industrial production and retail sales). It was only at the end of March when the major tensions in Ukraine started to ease (even though there has by no means been a breakthrough) that the indexes started to recover and fundamental factors came back into focus.
Looking at the behaviour of the Warsaw stock exchange over the last six weeks, it can clearly be seen that the annexation of Crimea wiped out the growth on the main indexes, with the WIG and WIG 20 falling to very similar levels as those at the beginning of February (even though they had gained 3,000 and 400 points). The falls on the sector indexes were more pronounced: WIG-Construction lost 3.6 pct and WIG-Developers was down by 1.5 pct. In the case of the construction index, it fell short of its peak at the end of February by app. 100 points, while the developers’ index remained app. 60 points down.
The last few weeks have been marked by the publication of Q4 2013 reports, making it possible to assess the last twelve months in the construction sector. In the case of the largest companies it was the rude health of Budimex that was attracting the most attention as it recorded higher profits (PLN 300.5 mln) and will probably pay out a record dividend. In contrast, the revenue of Polimex-Mostostal has almost been halved, but its losses decreased considerably (from PLN 1.2 bln in 2012 to PLN 246 mln in 2013). Analysts also praised the results of Trakcja (its revenue increased by 24 pct to nearly PLN 1.7 bln and following a loss the company recorded a net profit of PLN 37.7 mln in 2013). Meanwhile, the results of Mostostal Warszawa were poor – a loss of almost PLN 250 mln accompanied by a decrease in revenue from PLN 2.9 bln to PLN 1.7 bln. The company admitted that this was an effect of contracts signed in 2010–2011 that have turned out to be unprofitable due to an increase in raw material prices. According to daily newspaper ‘Parkiet’, which has analysed the reports of 31 construction companies, 40 pct of them enjoyed increased revenue and almost 70 pct saw a growth in profits.
When it comes to developers, the most unpleasant surprise has been the results of GTC, which lost as much as EUR 80 mln over the last three months of 2013, whereas analysts had expected a loss of only half as much. The loss at the end of the year came to PLN 750 mln, which results from decreasing valuations of its properties. Still, this year we were supposed to witness a breakthrough due to the larger number of transactions and the economic revival. The results of residential developers are somewhat different. Those who have recorded growth include Robyg and LC Corp as well as – first and foremost – J.W. Construction. Dom Development continues to be in a healthy position, while the February prices for Polnord’s securities were the highest in a year. J.W. Construction has already announced a PLN 140 mln share issue to raise funds for new projects.



Neighbours in reactive mode
The Ukrainian crisis had its biggest impact on the Budapest Stock Exchange. In the middle of March the BUX was at its lowest level for two years, having lost almost 10 pct in two weeks. The contrast between the falls in Budapest and the performance of other stock exchanges in the region begs the question of whether the adjustment was more down to investors’ assessment of the Hungarian government, which is unfavourably disposed towards financial markets. But by the end of March, the BUX index gained 0.2 pct within a month. whereas the PX 50 index in Prague lost 0.8 pct.