Constructors unruffled by the bears

The WIG20, at 1,980 points, has not hit such depths since July 2009. This took place despite the backdrop of healthy economic figures (GDP growth in Q3 of 3.4 pct), lower interest rates and the relatively good mood across the global stock exchanges. And the bourses were waiting for decisions from the main central banks. It is likely that interest rates in the US will go up this year, but the imminent prospect of an increase in the cost of money, which always negatively impacts the stock markets, has not had such a bad effect on investors’ moods just yet (in October the S&P 500 increased by 12 pct). On the other hand, central banks in the eurozone and China are tending to continue relaxing monetary policy (in 
Europe, quantitative easing plus negative interest rates, in China, interest rate reductions). Both the macroeconomic data from Europe (lower than expected GDP growth of 1.6 pct in the eurozone) and in China (GDP increased by 6.9 pct in Q3, the lowest growth since the crisis of 2008) show that such measures are not groundless; however, the question is whether they will generate the desired effect, particularly in the case of Europe. So what has brought about the poor state of the WIG20? Some analysts point to political issues. The election victory of the Law and Justice party, even though it guarantees the appointment of government free from coalition bargaining, which usually has an impact on the economy, has nevertheless not made the stock exchange-listed companies feel any more secure – including the largest ones. The proposed bank tax (on transactions or assets) and assistance for the coal industry from the power utilities are potential concerns for the Warsaw Stock Exchange. There are also question marks over new regulation for retail – such as additional tax on large format shops. In this situation only the first few decisions of the government will help to assuage the worries afflicting the WSE indexes. If the legislation turns out not to be so radical, the stock exchange could use the improved macro environment to generate growth. On the other hand, the WSE was not positively influenced by some of the results of large companies either – the Q3 financial reports of PKN Orlen or Orange turned out to be disappointing, while the results of KGHM Polska Miedź were frankly shocking. However, the experts point out that after the last few weeks companies listed on the stock exchange in Warsaw are simply cheap and a reversal of the trend is more and more probable.
Over the last four weeks the WIG20 lost more than 7 pct, while the main WIG index fell by 5 pct. The sector indexes turned out to be relatively resistant to this background. WIG-Developers only lost 2.5 pct and WIG-Construction remained at a virtually unchanged level.
Even though the price of Budimex’s shares does not reflect this, the construction giant has not been slowing down. At the end of Q3 the company reported that the value of its order portfolio had increased to a record PLN 7.4 bln and its liquidity is excellent. Its results were slightly lower than analysts’ expectations, but the management board of the company is looking into the future with some optimism and expects its 2016 revenue to be higher. Analysts at DM PKO BP are forecasting that next year will be a good one for the construction giant, particularly in terms of margins. The company, like a few others in the industry, is aiming to be a beneficiary of projects in the power sector. Polimex is also focusing on the power industry – 70 pct of its revenue comes from power-related projects. Its results after the first three quarters of the year were very well received – its revenue amounted to PLN 1.8 bln and profits exceeded PLN 70 mln. Mostostal Warszawa is coping much better, increasing its profit even though its revenue has fallen slightly. Analysts have praised the company, which is owned by Spanish group Acciona, for reducing its debt and putting more cash on its account. As far as other companies in rude health are concerned, it is worth mentioning Erbud, Mirbud, Herkules and Torpol, which Marvipol is fighting over through a call for shares. All in all, the WIG-Construction has been leaving the other indexes behind, growing by over 40 pct since the beginning of the year. Next month we will take a closer look at developers’ results and prospects.

Warsaw the only loser

The WIG20 in hitting its bottom levels below 2,000 points, stood out negatively against the other stock exchanges in the region. The BUX grew by almost 5 pct over the last month and the Prague PX50 increased by just under 1 pct. The strength of the Polish economy as reflected by the hard macro data is only surpassed by the Czech economy (the growth of which exceeded 4 pct). Since the beginning of the year the BUX has already gained 30 pct, while the WIG20 has fallen by 15 pct and the PX50 has increased by just over 3 pct.