Sprint to the finish

In an excellent final six weeks of 2016, when the WIG index rose by 9.5 pct and the WIG20 by 10.5 pct, the standing of the Warsaw Stock Exchange was clearly given a boost. Last year was full of surprises, mostly of a political nature, but the largest stock exchanges in the world still managed to end it in the green. In spite of the June panic following the Brexit vote (when the exodus of capital from the global stock exchanges was comparable to that during the credit crunch) and the unexpected victory of Donald Trump, the Dow Jones gained 12 pct, the S&P 500 8.5 pct and no significant adjustments are expected. Of course, Trump’s presidency still looms on the horizon and a possible increase in interest rates (reducing the attractiveness of stock exchanges), but the US economic situation still doesn’t look so bad. In spite of the turbulence brought on by the Brexit vote, the negative data for the health of the local banking sector (Deutsche Bank’s problems and the appalling mess Italian banks are in, compelling UniCredit to sell a PLN 10 bln stake in Bank Pekao in Poland to state-owned insurer PZU), the main indexes also finished the year in the green (e.g. the FTSE in London gained as much as 14 pct while the CAC 40 in Paris rose by 4 pct). In 2017, political developments should continue to stir up emotions on the bourses, since elections are to take place in several key EU countries, chiefly, the presidential election in France and the parliamentary elections in Germany. Following the events of 2016, the question mark over the survival of the EU over the next few years now appears to be a very real one. On the other hand, the reaction to the prospect of a Brexit seems to indicate that the economic ties that connect Europe could even be resistant to the growing strength of populists and radicals. The last year, which was salvaged right at its very end from the point of view of the WSE, confirmed the increasingly lower prestige of the Polish stock exchange. This was reflected in the number of debuts (18), which was the lowest since 2009 (13). At the same time, almost 20 companies left the stock exchange. Many of the IPOs were actually moving from NewConnect, the Warsaw trading floor for stock market novices. When it comes to the profile of new companies on the WSE, apart from the more strongly represented IT and pharmaceutical industries, developers also made a strong showing. This is another signal that the sector has put a very good year behind it, with a record number of apartments sold. And it is also reflected in the growth of the WIG-Developers index (almost 21 pct). In contrast, the performance of construction companies was poor – clearly behind the developers but also behind the broader market indexes. Even though WIG-Construction gained slightly over the last six weeks of the year (4 pct compared to 10 pct on the WIG20), the year was a weak one for the construction industry. A decline in construction and assembly production by a dozen or so per cent (the final data will be published this month) was also reflected in the share prices. Much of this is down to delays afflicting infrastructural projects carried out with EU support. A few large builders listed on the WSE are waiting for a revival in the infrastructure segment. Those that could reap this harvest include Torpol, Trakcja and Budimex. However, analysts are also seeing potential in construction sectors other than infrastructure, including: apartments, offices and logistics facilities. Awbud had a good year and analysts are also name-dropping Unibep and Elektrobudowa as companies worthy of investing in (having attractive share prices compared to their evaluations). Among the former giants, the perception of PBG is better, even though it has not received any help from the state – as opposed to Polimex. As it turns out, Polimex has not yet fully recovered and still needs fresh capital. At the end of 2016, the company’s shareholders decided to issue shares worth up to PLN 300 mln, which are to be acquired by... state-owned power companies.

What will 2017 be like? Analysts’ opinions are divided; however, gains are expected, mostly due to expected economic growth, better use of EU funds, a healthier job market and increased exports. The WIG, which stood at 51,800 points at the end of 2016, should grow to 55,000–57,000 points and the WIG20 (1,950 points) could reach 2,300 points..

Smaller but stronger

The Hungarian BUX emerged as the clear top performer over the entire year, gaining almost 35 pct, even though the Budapest stock exchange is markedly smaller than its counterpart in Warsaw and characterised by much lower liquidity, as is often emphasised. This does not diminish the fact that BUX has returned to its historical maximum levels of 2007. The Prague stock exchange, which is even smaller than the Budapest bourse, closed the year in the red (4 pct down).