Oil the fuel for index growth

The growing price of oil itself is fuel for the stock markets. At the end of January it cost USD 30, but at the beginning of March the price had gone up to USD 40 per barrel. More expensive oil brings with it greater demand for raw materials and, consequently, an economic revival; it also alleviates the worries over the oil sector that always cause jitters on the stock exchanges. This in turn enhances the appetite for investing in riskier but also more profitable assets, such as shares. The higher price of oil has, for now, pushed concerns about the condition of the Chinese economy into the background (adding to that effect was the positive news about the job market, the industrial sector and the real estate sector in the US, the latter being of key importance in the evaluation of the American economy); but some analysts point out that the growth in prices on developed markets might just be a spring adjustment to a longer downward trend – particularly considering the mixed signals coming from the central banks. The healthy US data point to the higher probability of interest rate increases. Certainly these will not be huge, but the psychological knock-on effect might cast a shadow on the indexes. Interest rate hikes are still a prospect (although analysts are now talking about the end of the year), but the further we get into 2016, the greater the impact this might have on investment decisions. The second key central bank – the European one – has reduced interest rates (to less than 0) and increased quantitative easing, i.e. pumped more cash into the market. These measures have contributed to an increased willingness to buy shares and added to the current euphoria on the exchanges, which have been seeing daily growths of 3–4 pct. However, there is one bad apple in the barrel. The European Central Bank has, at the same time, announced that there will be no more cuts in interest rates, forcing investors to look for other justifications for purchases. In Warsaw four weeks of growth have made it possible for the WIG broad market index to reach 47,000 points – a return to its 2015 level. The February and March growth was temporarily unhindered by any political interference: no new decisions were made concerning the economy. This does not mean that the insecurity – particularly on the part of foreign investors – has dissipated. The main anxieties are now over how stable the budget is going to be in the next few years and what the policy will be towards the state-owned companies listed on the WSE. Management boards are presently being shuffled and any announcements about the plans for the companies themselves (e.g. the creation of national holdings) might discourage investors from buying shares in the so-called ‘national champions’ – the group of companies characterised by their high capitalisation and their strong market positions. Politics has also partly impacted the construction sector. Polimex-Mostostal, which was rescued with a significant contribution from the government, has also undergone a personnel earthquake. The involvement of state-owned companies in its shareholding structure – the Industrial Development Agency and investment funds owned by PKO BP and PZU – turned out to the catalyst for the changes. At the end of February, its supervisory board was replaced and suddenly, a few days later, the management board was too. The CEO of the company Joanna Makowiecka-Gaca resigned and has been replaced by Antoni Józefowicz. The question is, how long and to what extent this extensive restructuring, which has been taking place since 2014, will continue. However, the majority of the construction sector on the WSE grew at the same speed as the broader market. The Mostostals – Zabrze and Warszawa – were the greatest beneficiaries of the positive atmosphere on the WSE. The latter company has already published its 2015 results, which are much improved, with a group profit of  PLN 32 mln compared to a loss of PLN 12 mln a year earlier. It does not have any problems with liquidity, either. Healthy 2015 results were no surprise for the stock exchange listed leader of the sector – Budimex. Its profit of PLN 236 mln with revenue of over PLN 5.5 bln represents a substantial dividend of PLN 8.14 per share, compared to PLN 6 a year earlier. In the publication of its results the company has also announced plans to enter the gas distribution market as well as strengthen its position in industrial construction and the modernisation of railway infrastructure. As far as the latter is concerned, even though the PKP’s investment plans are nothing short of staggering (PLN 7–8 bln is to be spent this year), the mDom Maklerski brokerage house has warned of possible delays in the tendering of such projects and recommends avoiding the shares of companies from this segment. However, such firms are both numerous and energetic, such as Torpol, ZUE and Trakcja. But according to mDom Maklerski it is better to focus on attractively priced companies, such as Erbud, Unibep and Elektrobudowa.

BUX hits 2010 levels

The positive economic climate has given the Budapest stock exchange a boost. The BUX has increased by over 12 pct since mid-February. As a result it has reached levels last seen in 2010. The suddenness of the growth raises questions over how long this is going to last and the likelihood of eventual corrections – but for now the BUX continues to climb. In Prague the PX50 was also on an 
upward, although slower, trajectory. However, along with the WIG it eventually returned to around its level at the end of 2015.