It was good, it’s now even better

A few factors contributed to an improvement of the mood on the financial markets. A truce was agreed in Ukraine, and even though the end of the conflict is still some way off and the threat of an escalation in Russia’s interference remains realistic, the situation in Eastern Europe did not frighten off investors. Fuel prices bounced and improved the prospects of that sector, which could be seen across the stock exchanges. In addition, the programme to pump money into the economy has started in Euroland, through the redemption of EUR 60 bln of treasury bonds per month by the Central European Bank, while the US has very good economic prospects as well as prospects for maintaining rapid economic growth compared to other developed countries. For the Eurozone, the continuing likelihood of Greece defaulting on its debt is certainly being regarded as a threat, pulling the indexes down once again. In Poland there was the unexpected reduction of interest rates – the main rate came down to a historically low level of 1.5 pct with a simultaneous announcement from the central bank that the cost of money would not decrease any more. However, the stock exchange still did not manage to keep up with developed markets in spite of the fact that Polish GDP has been growing considerably faster than in the majority of European Union countries. Some specialists are claiming that this is all the result of the open pension funds reform and the weakening of the position of pension funds as an important demand element on the stock exchange. However, on the other hand it could be the case that the proximity of the conflict in Ukraine is not helping investors to make purchase decisions. Over the last month the WIG20 lost almost 2 pct while the broad market index gained only 0.8 pct. Over the last year the WIG20 index lost 1.7 pct while the WIG gained 7 pct. In comparison, the American S&P500 broad market index gained 12 pct.

In contrast to the weaker results of the main indexes, the sector indexes performed very well. WIG-Construction is on a winning streak, growing by more than 20 pct since the beginning of the year and surpassing its best figures since the end of 2013. However, the index is still considerably below its levels at the end of the bull market in 2010/2011. Its January peaks were also topped by WIG-Developers and its annual rate of return is close to zero. The main event of the last few weeks was the sale of the controlling share package of Echo Investment to Griffin Real Estate by Michał Sołowow. Echo had been looking for a buyer for the package for nearly a year. The company itself is worth almost PLN 3 bln and has been listed on the WSE since 1996. In 2014 Echo generated a net profit of PLN 406 mln compared to PLN 331 in 2013. It is not out of the question that the change in ownership could involve the company’s withdrawal from the WSE.

However, there are a few signs that some new companies will emerge among the listed developers this year. Such as Atal, which, according to business press reports, could join the WSE within H1, as well as Lokum Deweloper and i2 Development – two companies that operate in the Wrocław area and have ambitious plans, which will require funds raised from stock exchange trading.

February and March are also the traditional period for the publication of 2014 results. Dom Development enjoyed higher revenue figures (PLN 784 mln – a growth of 16 pct) and slightly higher profit (PLN 56 mln). Due to its healthy financial situation the company is now planning to splash out over PLN 200 mln on new land. Last year was very good one for residential developers, as confirmed by the number of apartments sold (according to Reas, the total came to as much as 20 pct more than in the record years 2007 and 2013 in some of the largest cities). However, as the developers admit themselves, their financial results are not as impressive because margins are lower. The mood is even better in the construction industry. The valuations of the largest companies have been growing – well regarded Budimex has now been joined by the Mostostals: Płock and Warsaw. We will take a closer look at the financial results of the sector and the prospects for the rest of the year next month.

Growing faster over the mountains

February and March turned out to be a rather happy time for the  indexes in Budapest. The BUX increased by over 4 pct, matching the stock exchanges of developed countries. Its annual results also look better compared to the Polish indexes, as the rate of return exceeded 11 pct. Meanwhile, the PX50 in Prague gained 3 pct and generated a profit of app. 7 pct over the previous twelve months. The Warsaw index turned out to be weaker in terms of growth, even though the Warsaw stock exchange is much larger and more liquid.