Hope dies last

At the beginning of May the results of the French presidential election turned out to be of key importance for stock markets across the world. Its significance can only be compared to the US presidential election as the result could determine the future of the European Union itself. The financial markets, which have in recent years grown somewhat accustomed to the unexpected, were not surprised this time – the victory of Emmanuel Macron in the first round, which was confirmed by a spectacular level of support from the French in the second, turned out to be a welcome shot in the arm for the world’s stock exchanges, even though the scale of the rises was limited by the result having been widely anticipated. Upon taking office, Macron quickly confirmed France’s commitment to its strong alliance with Germany, which certainly strengthens the EU and the eurozone. The political fate of Germany will be settled this autumn (with everything pointing to a victory for the current chancellor’s party). Such a political situation, accompanied by a clear economic revival in the eurozone, has contributed to rising indexes in Frankfurt and Paris. The German DAX reached its all-time high, as did the indexes in America, which also broke records. The situation changed slightly in mid-May, when politics again came to the fore. This time it was the situation in the US. The unexpected dismissal of the head of the FBI, James Comey, by the US president as well as media reports of the supposed disclosure of highly classified intelligence to the Russians by none other than Donald Trump himself, started a political storm across the pond. Impeachment was even being discussed, triggered jitters on the stock exchanges, which turned into an excellent pretext to cash in profits and make adjustments. But back here the WSE is benefitting from the strong economy. The government has been bragging about its successes (such as the lowest unemployment rate in 25 years) and the indexes keep on going up. Retail sales and industrial payments are also on the rise. Furthermore, the National Bank of Poland has signalled that it will not be increasing interest rates any time soon. GDP grew by 4 pct y-o-y in Q1, and so it seems the long-awaited bounce in investment has taken place. The construction industry has been growing for a few months, which seems to confirm the theory that production is rising in response to new investment funds being released by the EU. The strong start to the year raises hopes for subsequent quarters and for the entire year, which is increasing the demand for shares. However, this was not reflected in the behaviour of the indexes at the end of April and early May. The WIG and the WIG20 admittedly saw rises, but only of 2–3 pct. The WIG is getting closer and closer to its all-time high of the summer of 2007. With a rapidly expanding economy and a lack of political tension, reaching the top this year is not impossible. Sector indexes remain stable. The WIG-Construction index has practically not changed, while WIG-Real Estate registered a slight decrease. Budimex once again stood out among construction companies with its share price coming close to PLN 270. The construction giant could boast good Q1 results, earning PLN 85 mln net compared to PLN 52 mln a year earlier. Just as importantly, its order book is worth a record PLN 9.3 bln, which guarantees its revenue in subsequent quarters. Budimex is acquiring more and more contracts in the railway sector, but at the same time, the company stresses that the competition is exceptionally strong in both road and rail construction. Mostostal Warszawa also enjoyed better financial results – its profit came to PLN 14 mln compared to PLN 12 mln a year ago. Meanwhile, Mostostal Warszawa, which is no small company, had an order book that came to PLN 1.2 bln. The former giant – Polimex-Mostostal – which is currently under the direct state control, is planning to become the market leader by 2023. The group is actively trying to win contracts in the power and chemical sectors as well as in industrial construction. However, the company’s results were worse than a year ago, with a net profit of PLN 16 mln compared to PLN 26 mln in Q1 2016. In spite of its good Q1 results, PBG’s share price plummeted. According to analysts this is because of an expected share dilution resulting from a new issue to be floated this autumn. The new share offer comes after an agreement with its creditors, which should bring to an end PBG’s financial woes (it was in bankruptcy open to arrangements between 2012 and 2015).

A strong rebound

This time the Hungarian BUX outperformed Warsaw indexes with a rise of nearly 7 pct. The good result is an effect of very strong economic data (the economy grew by 3.6 pct y-o-y in Q1) indicating a strong rebound. The Prague index increased just a little less (by over 5 pct). This was not due to the data about economic growth since the Czech economy increased by 2.4 pct in Q1 compared to 2.3 pct a year earlier. The rises in Prague and Budapest improved this year’s rates of return on both indexes and narrowed the gap between them and the WIG.