Optimism fades

The optimism of those who expected 2014 to be a year of robust economic revival is now slowly evaporating. The possibility of the geopolitical tension having damaging effects on the economic situation has put a serious damper on hopes for higher profits from trading in shares. The picture is even more depressing as the deterioration of the mood is taking place in a low interest rate environment – normally a natural stimulus for investors in terms of stock exchange activity. All the uncertainty has led the International Monetary Fund to lower its forecast for global economic growth in 2014 from 3.7 pct to 3.4 pct, a figure only slightly better than for 2013 (3.2 pct). On the global map of economic power, it is still the perennially strong US – even though it was the poor start to the year in the US that initially weakened economists’ forecasts – and Asia that are exhibiting the healthiest growth, both being free of cross-border contagion (e.g. from the weakness of the French economy, or the problems in Italy and Spain). The mood has been further dampened by the frosty relations between the EU and Russia over the situation in Ukraine. The fall-off in trade between the two sides due to the imposition of economic sanctions is already preying on the minds of the Europeans, including those in its largest economy, Germany. So far decrees by the Russian government to limit trade with the EU have acted as a stimulus for corrections on some of the largest European stock exchanges. Around the end of the first week of August, the monthly index balance of the stock exchanges in Frankfurt, London and Paris did not look very promising – the DAX lost almost 9 pct, the FTSE was down 3.5 pct and the CAC40 fell by 6 pct. However, the annual balance continues to seem somewhat favourable, because the annual rates of return of these indexes are in the green (13 pct, 1 pct and 2 pct respectively) – something that cannot be said, for example, about the WIG20 (-3.1 pct over the last 12 months). In view of the global situation and the weaker partial economic data for Q2 in Poland, a downward correction in 2014 growth is widely expected. The PMI index, which anticipates the business outlook in terms of future economic activity, dropped below the 50 pct mark, signifying a recession. As far as the Warsaw Stock Exchange is concerned, the gloomy macroeconomic news has been exacerbated by insecurity over who the buying parties are going to be. Not foreign investors – due to our proximity to Russia, the retreat from emerging markets and the overall correction on global markets. Not open pension funds – even though 2 mln people have chosen to remain in pension funds, the approach of the government towards them has severely limited the funds’ ability to buy shares. The only candidates for this role are the investment funds – and although the influx of such funds has been positive, their managers will also be monitoring the geopolitical situation and the behaviour of foreign investors with some concern. In this situation the weakening WIG20 index and the deterioration of the general mood, particularly at the beginning of August, was not surprising. The industry indexes markedly dived much deeper than the main ones: the index of construction companies lost 6 pct while WIG-Developers fell by as much as 13 pct. When it comes to the construction firms themselves, the annual lowest point and largest decline was registered by Mostostal Płock, which is now looking for new contracts for the next few years after the completion of its restructuring process. However, something of a breakthrough was achieved at Polimex-Mostostal, which is also in the process of turning itself around. The company concluded an agreement with its creditors at the end of July and its general meeting approved a share issue with a value of over PLN 0.5 bln. According to the plan, the state-owned Industrial Development Agency is to increase its stake in Polimex’s shareholding structure, while Polimex itself is to focus on the petrochemical and energy business.
Meanwhile, the developers’ segment was marked by downward movements – only Ronson, Marvipol and Celtic moved up over the period, and the last of these managed to gain as much as 27 pct. All the other companies, however, lost ground, some even registering double-digit declines. If the sector’s prospects can be gauged by developers’ willingness to obtain capital from investors, then it doesn’t appear to be doing so badly. J.W. Construction is looking to raise PLN 120 mln from the stock exchange for new projects and JHM Development is hoping to acquire PLN 110 mln in the same way. According to the developers, reserves of new apartments across the country are running out so they now need to invest in order to provide enough supply over 2015/2016. The low point of the share price of Polski Holding Nieruchomości is also worth mentioning. It is 70 pct owned by the state and is in the process of being privatised, but the due diligence just completed by potential investors has not resulted in any firm offers over the purchase of a controlling stake. ν (Mir)

Budapest scaring off investors

In July the smallest declines were registered by the Prague PX 50 index, holding its level from the previous month. The size of the stock exchange and, consequently, its turnover has enabled investors to insulate themselves against losses resulting from the ongoing correction on the global stock exchanges. The Hungarian BUX index, however, lost almost 8 pct over the same period. But despite the slump of the BUX, the price-to-profit ratio for the Hungarian economy remains high compared to the stock exchanges in Poland and the Czech Republic, thus driving potential buyers away.