On the rebound
Stock market report
The losses prompted by the Brexit vote were eventually partly made up for. The cliché about steep declines preceding growth was confirmed yet again. Even more so taking into consideration the fact that the Brexit will take place in a minimum of two years’ time (it has not formally started yet) and its potentially negative effects for the British and global economy might be limited with some skilful negotiations and bilateral trade contracts. Whether the UK goes on to enjoy economic turnover similar to Norway (which is not in the EU but utilises its four main freedoms – of capital, people, goods and services, the bases of the economic success of EU – will only become clear over the next two years. And in the meantime the global economy trundles on – therefore it came as no surprise that investors’ eyes were turned to the USA once more, where the excellent data from the job market pushed the S&P500 index up to record heights, as a bull market ensued on the largest stock exchange in the world. This is taking place while the economy is doing ok and the Federal Reserve remains in no hurry to increase interest rates. The prospects are even promising, if the rosy forecasts for 2017 are to be believed. In Europe the price growth in the post-Brexit bounce-back was slightly hindered by the rather weak eurozone economy as well the return of the spectre of banking sector problems, this time in Italy. This is dangerous because Italy is a large economy and so its banking issues do not occur without an impact on the entire ‘circulation system’ in Europe. In spite of this, the European indexes managed to make up for the Brexit losses. Another positive aspect is the fact the European indexes registering growth includes the Warsaw stock exchange. Between the end of June and mid-August the WIG gained 9 pct and the WIG20 almost 6 pct. Turnover revived and the general mood improved, which should be considered positive as the risks remain unchanged, for the stock exchange itself and for the economy. The dangers for the stock market mostly include the issue of the further dismantling of open pension funds. The first attempt at doing this was two years ago, during the coalition of the Civic Platform Party and the Polish People’s Party – and the result was a weakening of the Warsaw Stock Exchange. But the latest plans of the new government might even turn out to be fatal for the bourse. Meanwhile, the economy is growing, but at a slower pace. Q2 saw an increase in GDP of 3.1 pct, which was lower than the analysts had been expecting and was mostly put down to lower investment levels. The economy is still based on private consumption driven by the 500+ programme. Investment, meanwhile, is suffering, as is reflected by the complaints of those in the construction sector about the weak demand for their services from the state, contrasting it with the huge programmes (calculated in dozens of millions) for road and railway modernisation. The Central Statistical Office (GUS) reported that in H1 the value of construction and assembly production decreased across all sectors, most significantly for civil engineering. Construction companies listed on the WSE also shared their feelings and H1 results with the market. The industry was shaken by the news of large scale of redundancies in the Skanska group. The largest conglomerate on the WSE – Budimex – was able to publish some very good results (revenue of PLN 2.4 bln and net profit of PLN 146 mln with respective y-o-y growth of 7 pct and 37 pct, as well as a record order portfolio value – PLN 9.1 bln) but its president, Dariusz Blocher, admits that the decline in the construction and assembly industry will be significant this year due to delays in the tenders for the construction of roads and the modernisation of the railways, while the reduced number of contracts might lead to a price war. The end of 2017 and early 2018 was expected to a good period for the sector, but this upturn could now be delayed by as many as two years. Nevertheless, WSE-listed companies have been gaining in value. Apart from Budimex, companies whose share prices have increased include Erbud, which has been building up new contracts and is also applying for new ones abroad (including for an office and retail complex in Dusseldorf). Shares in Torpol and Trakcja also appreciated significantly, even though in this case the market is buying the expectation, with announcements that the delayed tenders for railway modernisation work are finally set to take place soon. PKP (the Polish State Railways) is planning to invest more than PLN 500 bln on the railway modernisation over the next few years.
Regional bounce back
The relatively shallow June declines on the BUX index in Budapest were followed by a similarly small rebound in July. The BUX gained just over 2 pct, but still managed to climb back up to its historic heights of 2007. The Prague PX50 has been performing much worse compared to the fluctuations of the index over the years, but in July and mid-August the Czech stock exchange index managed to gain 4 pct, in line with the average on global stock exchanges.
