EU provides framework for hope

Stock market report
The Chinese economy grinding to a halt has left its mark on stock exchanges all over the world. The end of the summer was itself marked by fire sales – panic sell-offs. Fortunately, the frenzied minds of investors were cooled by the improved macroeconomic data published in September. In contrast to the previous month, when construction companies were the leaders, this time the main feature has been declines

Nobody seems to remember Greece anymore. An aid package of EUR 86 bln has made it possible to erase the Greek problem from global investors’ map of risks. However, a new threat has emerged, which was forecast by the declines this year: the slowdown of the Chinese economy. And this is a truly global problem, because the second largest economy of the world, and certainly out of the largest economies the one growing the most dynamically, can seriously upset the balance of the financial markets. Examples of this could be seen in the last week of August, when the Chinese government reacted to the situation on the Asian stock exchanges by devaluing the yuan, which did not help much. The sell-off continued as before and it was only after a few days that people got themselves together enough to point out that firstly, the state of this economy is better than during the 2008 crisis, and secondly, that the Chinese government is capable of stimulating the economy even further if the situation deteriorates. Besides, the GDP growth forecast for the country is still 7 pct – a level completely unattainable for the American economy, never mind in Europe. Heads started to cool by the beginning of September (following better than expected data from the USA – with Q2 GDP growth of 3.7 pct compared to the 3.2 pct that had been expected), and after the statements made by the head of the European Central Bank, who pushed for further stimulation of the euroland economy. In mid-September growth had returned to the stock exchanges and the Chinese scenario changed from catastrophic to ‘a controlled economic slowdown’, while investors started to look on the horizon for another stimulus for bringing the sunshine back to the stock exchanges – an increase in interest rates in the USA, which could take place at the end of 2015 or early 2016. The monthly balance of the Warsaw Stock Exchange was around zero. Even though external factors had a considerably stronger influence, the approaching parliamentary elections needs to be borne in mind. The outcome of the election is set to have an impact on investors, as it adds to the pressure on the banks to change their approach towards people unlucky enough to have mortgages denominated in Swiss Francs. The billions of złoty involved in politicians’ promises and the opinion polls in October are likely to swing the Polish stock exchange in one direction or another.

The construction companies index suffered the biggest decreases this time – losing over 3 pct. This is interesting because Q2 was very good for companies from this sector – according to MDom Maklerski they reported a total net profit that was 60 pct higher y-o-y. There is much to suggest that the current EU financial framework means better times for construction companies, particularly those specialising in infrastructural construction. Companies set to benefit from this include: giants such as Budimex (although the diversification of its revenue sources needs to be pointed out) and companies involved in the modernisation of the railways. The government plans to earmark PLN 67.5 bln for this purpose. And this is why our list also includes companies representing the segment: Torpol and ZUE. The former company has an order portfolio of PLN 1.2 bln and is becoming increasingly bolder in terms of its activities in Europe (including Norway and the Balkans). ZUE is set to earn around PLN 1 bln from the railway investment.

It seems that the worst days are behind the former giant Polimex Mostostal. The group has cut its workforce from 14,000 to 5,000 people and wants to start its ‘second life’ by focusing on the power construction as well as the oil and chemical and gas segments. In H1 the company generated a profit of PLN 40 mln. Representatives of Mostostals Warszawa and Zabrze are also optimistic about the future. Both companies had better H1 results than in the same period last year. Even though stock exchange quotations over the last two weeks are not confirming this, construction companies are doing better and better. The Q2 results of developers show – better than the data of the Central Statistical Office (GUS) – that the situation in the sector is not bad: four companies out of the ten largest developers had improved results, according to the portal, while five had slightly worse results than a year earlier.

BUX loses value but the best in the long-term

The Warsaw Stock Exchange was the strongest among the three trading floors of Central Europe. This time the influence of the developed markets was the most visible on the smaller trading floors. BUX lost 4.4 pct while the stock exchange in Prague lost 3.7 pct. However, BUX is in the relatively best situation when taking a slightly longer term view – over the last six months it gained 15 pct whereas the Prague stock exchange lost 4.5 pct and WIG20 fell by almost 6 pct..