Difficult road ahead for the bourses

The January price decline of oil to levels not seen for over a decade spoilt the mood across virtually every stock market in the world. The Chinese stock exchange dived and attempts to manually stop its slide (through suspending sessions) resulted in even greater panic on the trading floors. The US macroeconomic data is increasingly pointing to a weaker American economy. Another factor is the situation in the eurozone, where the accumulation of political problems (the migration crisis, the possibility of liquidating the Schengen zone, the potential exit of the UK from EU) will certainly also have an impact on the state of the European economy, which is weakening as it is. Poland was affected by the news of its downgrading by Standard & Poor’s at the beginning of the year. This is the first such reduction for Poland in the last twenty years. Even though the decision of the agency impacted the currency market more, it certainly did not help the Warsaw bourse either. Stock exchange investors were clearly spooked by the presidential bill to help for people who have mortgages denominated in Swiss francs, the announcement of which reduced the values of the banks listed on the stock exchange once again – and it will most probably be the issue of assistance for such mortgage holders that will burden the stock exchange for many months to come. It was only the end of the month that investors in Polish stocks could take a breather: the healthy GDP data in 2015 (growth of 3.6 pct, which was more than expected), along with – and this might seem paradoxical – the deterioration in the US economy. This means that American any hikes in interest rates are set to be more limited, thanks to which investment on emerging markets will become more attractive (where there are potentially higher rates of return). The temporary increase in fuel prices also encouraged investors to buy shares. The situation in Western Europe seems to be less optimistic, as concerns about the status of European banks have returned while the apparent difficulties faced by Deutsche Bank are reminding people of the collapse of Lehman Brothers eight years ago. So it would be difficult to make the case that the European and global stock exchanges are out of the woods, which needs to happen for there to be an improvement in the situation on the WSE. And this is looking particularly unlikely at the moment – the WIG20 index is below the level of 2,000 points, while the lack of reasons for a revival of the stock exchange market in  Poland (the uncertain future of open pension funds, the lack of large flotations of state-owned companies etc.), as well as the many difficulties that lie ahead (such as those facing the banking and power sectors), could all conspire against growth on the Warsaw Stock Exchange.

The balance of the first six weeks was negative, although not as dramatic as has recently been the case. The relatively slight decreases of the broader market indexes were smaller than those of the sector indexes. The construction index lost almost 6 pct while the developers’ was down by 5 pct. However, this does not mean that the prospects of the two sectors have suddenly deteriorated. A report by MBank’s brokerage house confirms the current good perception of the sector, forecasting good times ahead, particularly for developers. The healthy economic situation should encourage the demand to grow, even though 2015 was a record year for large stock exchange listed developers. According to the 2015 data, it was a very good year for LC Corp, Atal and Robyg as well as Wikana. But an analysis of their performance reveals that good results do not always go together with growing share prices. Developers are undoubtedly preparing for another fruitful year. J.W. Construction has finished the latest stages of projects in Łódź and Katowice and has floated PLN 120 mln of securities on the corporate bonds market. Another industry giant, Dom Development, is hoping that its good 2015 results will be surpassed this year thanks to the good macroeconomic situation. The company’s plans are ambitious – it aims to build almost 3,000 apartments this year. Its rude health supported by the company’s plans is reflected by analysts’ interest in the company – the brokerage house of MBank and Haitong Bank are among those that have increased their valuations of the company’s shares: to PLN 60.8 and PLN 50.1 respectively in February. Another developer, one of the sector’s leaders in terms of share price growth in 2015 (130 pct) is Polnord, which is working on a new strategy that is to be ready in March.

There was an adjustment among construction companies, particularly when it came to the largest players. Budimex, Mostostal Warszawa and Polimex Mostostal all registered losses. However, the industry leader, Budimex, remains very active and continues to win road projects (eg. a section of the S5 for PLN 233 mln), while participating in railway and power tenders and is considering international expansion.

Warsaw comes out the strongest

The beginning of 2016 saw losses on the stock exchanges in Budapest and Prague. This time the WIG20 turned out to be the strongest index, which should not be surprising considering the scale of the falls on the three main CEE stock exchanges over the last few quarters. The Budapest BUX lost 4 pct and the Prague PX50 was down by 10 pct. In spite of the sliding indexes, economists insist that the Hungarian economy, in particular, is in good shape, as confirmed by the Q4 data (annual growth of 3.2 pct compared to 2.4 pct in the previous quarter).