Spring in their steps

An analysis of the stock exchange fluctuations of last year suggests that such a scenario is likely. The indexes of developed markets enjoyed double-digit rates of return. The S&P 500 gained by around 17 pct, the Nasdaq by over 20 pct, European stock exchanges did not lag behind: the Frankfurt DAX was up by 21 pct, the Paris CAC40 by 18 pct. Against this background, the 4 pct and 1.5 pct growths on the WIG20 and the Budapest BUX taken together with the declines on the Brazilian and Turkish stock exchanges constitute a strong reason to expect future gains. This becomes even more likely if you take into account the fact that the global economy is gaining momentum and international institutions such as the International Monetary Fund and the World Bank are publishing more optimistic forecasts for GDP growth for this and the next year. The relatively and consistently low inflation levels are creating favourable conditions for interest rates staying down at record lows, which is also supporting the capital markets. Will the long-awaited bounce scenario materialise for the Warsaw Stock Exchange? The Polish economy continues to develop strongly and, importantly, in a stable manner. Consumption, investment and exports are fuelling the upward movement of Polish GDP. There is a significant chance that Q1 will be better than the last Q4 in terms of dynamics (when it grew by 2.7 pct), which at the same time means that the year as a whole will be better than the forecasts of only a few months ago. However, the geopolitical crisis centred around the Russian-Ukrainian conflict could negatively impact stock exchanges in the region. Secondly, analysts point out that a large allocation of shares in the portfolios of open pension funds could hamper growth and so any possible impulse for growth might have to come from foreign investors
In this rather unclear situation the balance of the indexes at the end of March and the first fortnight of April on the Warsaw Stock Exchange came as no surprise. The WIG lost 0.25 pct, while the WIG20 and WIG30 registered slight increases of no more than 0.5 pct. The sub-indexes also had a mixed performance: WIG-Developers increased by 1.5 pct, while WIG-Construction decreased by 1.2 pct. The developers’ index managed to resist the downward trends from the end of the first week and the beginning of the second week of April and did subsequently lose any ground after the end of March. The changes on the indexes proved to be merely cosmetic – something that cannot be said about the individual companies listed on them. In the construction sector, apart from declines in the obviously struggling companies (Budopol, Mostostal Export, Polimex), double-digit decreases were also suffered by Elektrobudowa and Mirbud. The former company published a forecast which projected a return to revenue of more than PLN 1 bln (in 2013 it was over PLN 800 mln) as well as increasing its net profit to PLN 23 mln from PLN 13 mln last year. Since the beginning of 2014 the share price of Elektrobudowa has decreased by almost 25 pct. As for Mirbud, this should also be a better year: the company mostly wants to improve its profitability by combining the scale of the road business with more profitable residential, office and industrial construction projects. Among some of the largest construction companies, the share price of Budimex improved, coming close to PLN 150 at the beginning of April – its highest level in seven years. Meanwhile, Polimex revealed that it was expecting a new agreement to be signed with its creditors and could be back in profit as soon as next year. The group is in the process of being comprehensively streamlined and could list Torpol on the stock exchange in the next few months, as it has failed to find a strategic investor for its subsidiary.
Stronger fluctuations in the last few weeks were experienced by developers. Strong growth, of as much as 22 pct, was registered by Gant. This was mainly the result of Global Energy entering the shareholding structure of the company, describing its move as a long-term investment in the developer’s shares. At the other end of the spectrum there was another developer, whose shares have been troubled by high volatility for several years – Orco. The loan for the construction of the Złota 44 luxury apartment building in Warsaw that was terminated at the beginning of April meant that it was necessary to promptly repay over PLN 250 mln. The company has announced that it will raise the funds from the sale of its liquid assets, while a bridging loan was eventually taken out with its creditor to give time for this to take place.

Prague and Budapest on the march
The stock exchanges in Prague and Budapest are being impacted by the same factors as the Warsaw trading floor, but they performed slightly differently. The BUX did not lose it gains from the end of March and the beginning of April. Its monthly balance registered growth of 3.5 pct. Meanwhile, the PX50 in Prague also gained more than the WIG – as much as 2 pct. Such a situation might be surprising given that the two countries have lower projected economic growth than Poland. GDP growth in Hungary and the Czech Republic will not exceed 2 pct this year.