Sector indexes surge ahead

The summer holiday period this year was far from a quiet one. The continuing Greek crisis prevented indexes from growing. The adjustment, which started in May, was still in full swing in July. Only the reaching of the eventual agreement brought back increases of a few percent to the main European trading floors. The Greeks have now undertaken to implement some very difficult reforms – increasing VAT and CIT taxes, increasing the retirement age and cuts in social benefits. Even though creditors eventually accepted Athens’ proposals, the issue of trust in the Greek country, which had been undermined by subsequent administrations in Athens, was equally as important during the negotiations as agreeing on concrete plans for the restoration of its public finances. However, so far the spectre of the Grexit and the completely unpredictable reaction of the financial markets to such an unprecedented event has not undermined investors’ willingness to buy shares. Particularly since a revival of the European economy is still taking place, as confirmed by subsequent macro data. A different factor has emerged instead. A “quiet and necessary” adjustment on the Chinese stock exchange (required because the trading floor in Shanghai gained 150 pct within one year) actually sparked panic in July. After a temporary cooling down in August, China came back as the main factor behind the declines across the world. The slowdown of the most dynamic among the world’s largest economies means lower demand for the resources needed by China. This has been exacerbated by a reduction in the value of the Chinese currency by the country’s central bank. The situation in mid-August became so serious that the formal adoption of the agreement reached by Greece and the European Union in July (and EUR 8579bln in aid for Athens) went practically unnoticed by the markets. In the near future it will be China and the imminent reduction of interest rates in the
US that will determine the situation on the world’s stock exchanges. And what about Warsaw? Here the external factors included the local stimuli that were apparent over the last few weeks. The run-up to the election campaign was one major destabilising factor for share prices. The electoral promises being made are affecting investors because they concern two sectors strongly represented on the WSE: banks (and the issue of taxes on bank assets, due to the ‘bridge’ act for people who have mortgages denominated in Swiss francs) and state-owned listed companies (and the issue of a copper tax and the implementation of aid for the mining industry from the power sector). The trade unions, which are strong in many enterprises present on the WSE, are also becoming more active. All the politics mainly affects larger companies and so the index of blue chip companies lost 4 pct over six weeks, whereas the broad market index of the WSE finished the period only 0.8 pct down. Compared to the main indexes the industry indexes are doing great – the developers’ index gained almost 4 pct while the construction index went up by as much as 15 pct. The latter was mainly due to Budimex, which has had excellent recent results – with the company exhibiting impressive recent growth and earning the praise of analysts. The company’s share price now exceeds PLN 200 and some analysts estimate that it will increase to PLN 220–230. The firm currently dominates road construction (30 pct of all contracts are carried out by Budimex) and the value of its contracts this year could be a record PLN 7 mln. And on top of that the main infrastructural investors – the General Directorate of National Roads and Motorways (GDDKiA) and the Polish State Railways (PKP) – are just starting new investment programmes with EU funding. The publication of its Q2 results has confirmed the good condition of the construction giant – its revenue and profit turned out to be higher than analysts’ expectations: PLN 1.42 bln and PLN 69 mln respectively. Shares in Elektrobudowa are also doing fine, reaching PLN 140 and, according to some analysts, it is the company with the greatest potential in terms of price growth (some recommendations set the eventual price at nearly PLN 160). The impressive performance of WIG-Construction is the result of the price surge in many construction companies, such as Elektrobudowa. Mostostal Warszawa has gained over 130 pct since the beginning of the year. Meanwhile, a new construction company with an interesting history has emerged onto the WSE – Pekabex of Poznań. The company was close to bankruptcy but has since recovered and has decided to look for funds on the WSE. Its public offer was worth PLN 73 mln, PLN 30 mln of which came from the issue of new shares. However, circumstances did not help its debut – Pekabex was listed in the very middle of the Greek uncertainty.

Stronger neighbours

The stock exchange in Warsaw was the weakest of the three trading floors in Central Europe. The political uncertainty in the run-up to the general election made it impossible to take advantage of the healthy economic situation (which is also a factor in the Czech Republic and Hungary) as well as tapping into the bounce following the end of the Greek crisis. The small stock exchange in Prague grew by 5 pct while the BUX in Budapest gained 3 pct.