Construction leads the sub-index pack

Admittedly, US interest rates increased (by 0.25 p.p), which usually signifies that the health of the stock exchanges is flagging (because of the higher attractiveness of deposits), but statements made by the Federal Reserve seemed to indicate a moderate inclination to push rates up further. On the other hand, the higher cost of money (and the strengthening of the dollar) mean higher sales revenues. Europe has been experiencing an economic revival unseen for many years. The leading indicators and data confirm that the euro zone is in its best economic condition for the last five or six years. However, it is worth considering political factors – especially the two-round presidential election in France, which will be decided in May. The possible successful outcome of a Marine Le Pen presidency (a eurosceptic and French isolationist) might result in a sell-off on the stock exchanges. In the wake of the Brexit referendum and the elections in the USA, everybody is now braced for the kind of negative scenarios that were in the past regarded as highly improbable. The threat of such an outcome could throw the future of the EU and the euro zone up in the air. The economic forecasts for Poland, however, are increasingly rosy – mostly due to an expected rebound in investment (due in part to EU funds). Some economists are expecting GDP to grow at an even faster pace, by as much as 4 pct in 2017. The current high consumption levels are being supported by the low unemployment rate and social welfare schemes (the 500+ programme). The question is whether these factors will not lead to an increase in inflation (which has been very low for years) and a subsequent growth in interest rates in Poland; however, this seems to be a remote possibility – for the moment. The adjustment on the country’s stock exchange was limited to small index movements. The WIG lost 1.5 pct over a month, but has been around 14 pct up on the beginning of the year. The WIG20 has been in the 2,200–2,300 points range, guaranteeing a quarterly rate of return of more than 10 pct. Meanwhile, WIG-Construction registered a decrease of 3 pct, but still remains the undoubted leader of the sub-index pack; while the WIG-Raw Materials sub-index has been rising the fastest (30 pct since the beginning of the year). The only one to be up was WIG-Real Estate (2.9 pct). There are two reasons for this – on the one hand, WIG Real Estate ‘missed’ the large growth wave enjoyed by other indexes and has gained little since the beginning of the year with a total rise of around 9 pct (the sub-indexes of the grocery as well as telecommunication and IT sectors have been doing worse); but on the other hand, the first apartment sales results for Q1 2017 have turned out to be much better than analysts’ forecasts (who had always been quite optimistic anyway), which is also adding to investors’ appetite for companies from this segment. According to rynekpierwotny.pl, Q1 turned out to be another record quarter for WSE-listed developers. Their growth was mostly in the double-digits – Robyg, Murapol and Dom Development have done the best in terms of absolute numbers, while Archicom, Echo Investment and Victoria Dom could boast the highest increases in sales. In Warsaw alone the number of apartments sold came to 8,000. These purchases have been stimulated by low interest rates, not just because of the low cost of credit but also due to the fact that apartment purchases are often cash-based. Thus it is not surprising that the increase in residential building permits issued in the first two months of 2017 came to nearly 70 pct y-o-y. Developers have recorded huge increases in their 2016 profits (in the triple-digits in some cases, such as J.W. Construction and Ronson); but despite this, analysts still look favourably upon the segment and the Q1 results should also raise their evaluations, forecasts and recommendations in regard to share purchases from such companies. It is also worth noting that Józef Wojciechowski bought up more than 17 mln shares from his call and currently holds 86 pct of the voting rights at J.W. Construction’s general meeting.

No money to be made

The moderate growth in Budapest – of just over 2 pct – over the last five weeks has prevented the BUX index from returning to the historic maximum heights it reached in February. The Prague stock exchange index, the PX 50, registered a slight fall. Both bourses are performing more weakly than the WSE this year – on the BUX it has only been possible to earn 2 pct since the beginning of 2017 and only 6 pct on the PX 50. By comparison, on the WIG20 you could have earned almost 16 pct (just as with the Romanian and Turkish indexes).