At the crossroad

Over the last month, it was the developed markets that turned out to be more effective in terms of defending the gains they had previously made. While the correction was taking a firmer grip in Warsaw throughout April, the effect was milder on the global stock exchanges. Even though at the end of April and early May there were more factors emerging from developed economies that could have stopped investors from buying, the passivity of the US central bank that followed (the lack of interest rate increases creating a good climate for stock exchange purchases) was welcomed by investors. The weaker Q1 data from the USA could turn out to be bad news for the American stock exchanges if the trend continues. Investors are also worried about the fact that investments are doing poorly across the ocean and that the growth is based on private consumption, which could in turn contribute to increasing inflation expectations and encourage the US central bank to act. The puzzle in the largest economy is rather complicated, as it also is in the case of China or Japan, where the macro-data and forecasts indicate that their economies are weakening. With such insecure economic prospects, political factors seem to be more potent and are encouraging people to invest in the most secure assets (hence the steady growth in gold prices over the last few months). Chief among these factors are, of course, the potential Brexit after the June referendum and the result of the US presidential election towards the end of the year. So far the markets are expecting (and this can be seen in the prices) a victory for Hillary Clinton. Polls that indicate that Donald Trump has a chance will continue to cause stock exchange wobbles in H2.

The largest companies that suffered most from the adjustment on the Polish stock exchange, as reflected by the WIG20, which lost almost 7 pct. The WIG broad market index fell by more than 4 pct. The lowest economic growth for two years was registered in Q1 (3 pct – down from more than 4 pct in Q4 2015) does not change the forecasts for the whole year (3.5 pct), but it could turn out to be a weaker counterbalance to the ongoing bearish mood related to the ongoing problem of mortgages denominated in Swiss francs. The lower turnover, down by more than 15 pct over the first four months of the year, is also worth mentioning. For some analysts this is another signal confirming the weakening significance of the Warsaw Stock Exchange in Europe, after privatisations through the bourse were put on hold and pension funds were reformed, which further decreased the circle of buyers. Nevertheless, on the other hand the lower turnover over the course of an adjustment could reflect its superficial character. In mid-May the indexes started to climb back up thanks to Moody’s keeping Poland’s rating at its current level.

The sector indexes looked healthy compared to the basic indexes, which were more badly hit by the correction. WIG-Construction admittedly lost more than 2 pct, but WIG-Developers held onto its position. The residential development sector is being viewed positively by investors, an opinion supported by the good situation on the job market, growing salaries and low interest rates. One example is the Q1 results of sector leader Dom Development. The company generated a profit (over PLN 5 mln) compared to a loss last year, while its revenue increased from PLN 72 mln to almost PLN 140 mln. Its representatives openly talk about the high demand and record apartment sales. While for Polnord, which improved its results slightly, its net profit was nothing to phone home about (PLN 180,000), but the company’s president Dariusz Krawczyk has announced cuts following work that was carried out in previous quarters. Polnord is planning projects in five large cities this year. Rank Progress is still on the winning streak that started at the end of March. The price of the company, which was less than PLN 1, has since increased to over PLN 3 per share. Rank Progress has also published wide-ranging plans for reducing its debts, including the sales of some properties, but analysts emphasise that the June redemption of bonds issued by the company will be an important dividing line. The next few weeks will show how strong the foundations of the company’s current growth are. So far Rank Progress has set its annual maximum price. As has ABM Solid, a construction firm which, however, is at a different stage of exiting a difficult situation. A deal struck with Millennium bank at the beginning of May was welcomed by the market. We will take a look at the results of construction companies next month.

Neighbours in the doldrums

This time the Hungarian BUX index was not as resistant as it has been in the last few quarters. However, its monthly loss of 2 pct is still a very good result compared to the losses on the WIG20. And this is on top of the fact that the growth of the BUX index has amounted to 15 pct over the last three months, whereas the WIG20 has only increased by 1 pct. The PX50 in Prague registered a similar scale of losses as BUX. However, its quarterly growths more closely resemble those of Warsaw.