No stars among the builders

The oldest index of the American stock exchange – the Dow Jones – hit another historic level (23,173 points) on October 18th. The S&P 500 also achieved its own peak prior to this and the current Q3 report publication period in the US has been giving us more evidence of the healthy state of the US economy. The financial markets are clearly heating up under the influence of the real economy: the money being pumped into financial circulation has been driving surges on the stock exchanges, as well as mergers and acquisitions. Concerns over the stand-off with North Korea brought about a brief adjustment in the early autumn, but eventually the regime’s ‘stunts’ as well as Donald Trump’s inflammatory statements seem to have been accepted by investors as permanent features of the political landscape. International politics was overshadowed by other issues, such as the long-awaited (and so far partly reflected by the share purchase decisions of investors) US tax reforms which, in a nutshell, could drive up US consumption and lead to a rise in companies’ valuations. However, the economy is not only moving in the US, but also in China, where companies’ profits have continued to soar. In Europe the economic superstar is still Germany. DAX, the Frankfurt index, also reached its historic height in October. Industrial production has been growing, exceeding analysts’ expectation several times over. Europe is optimistic following the German elections, which maintained the political status quo in the most important eurozone and EU country, despite the surprisingly strong turnout for the German far right. This mood was deflated somewhat at the beginning of October as the Catalonian separatist campaign turned violent – and if successful, it could seriously threaten EU unity and destabilise it once again just after it had become accustomed to Brexit. The situation in developing countries looked slightly weaker by comparison to more developed markets. The strengthening of the dollar prompted an adjustment on the emerging markets but, according to analysts, the huge flows into global share funds as well as the prospect of healthy returns from investment in these markets should bring about a return to a rise in valuations, and this also applies to Poland. This market is slowly ceasing to be regarded as emerging, after the FTSE Russell agency declared that Poland would be classified as a developed market as of autumn 2018, joining the ranks of Germany and Japan as the first CEE representative on this list. This is undoubtedly a piece of good news, but could encourage funds that invest on emerging markets to sell their Polish shares to those that generally operate on developed markets. However, there may be considerably fewer of the latter than the former, because Poland will find itself in a weaker position among the economic giants, compared to its status among the emerging markets.

The beginning of the autumn on the WSE was only moderately good, dampened slightly by the above-mentioned adjustment, even though the Polish economy has been promising and is forecasted to grow. The fact that the WIG and WIG20 slipped back slightly in the last five weeks cannot be a reflection of a thriving economy, but analysts are not discounting the possibility that the WIG index will eventually surpass its historic record over the next few weeks, while the WIG20 should exceed 2,600 points. Construction companies suffered weaker results, as their index registered a decline of as much as 7 pct. Any search for star performers in this sector would be futile, given that even its leading firm Budimex and its CEO Dariusz Blocher are speaking of there being some rather significant challenges ahead for the industry that could have an impact on the number of projects, such as the growing salary pressure and the shortage and high prices of materials. Haitong Bank agrees with this analysis, pointing to increased price pressure in the battle over contracts (the same reason for the problems of many construction firms a decade ago) and the salary pressure in the industry. As far as developers are concerned, it is worth taking a look at the well-received change in the shareholding structure of LC Corp, mentioned in this column a month ago. Its largest shareholders are now financial institutions. A new supervisory board of the company is now being put together.

The impact of adjustment

The WIG remains the most profitable index in 2017 compared to its counterparts in Budapest and Prague. This has been the case despite the slight rise of the BUX over the last month (0.3 pct). The PX50, however, underwent a slight decline (0.2 pct). Both stock exchanges were affected by the same factors as the WSE – the adjustment across emerging markets, which has left its mark despite the healthy condition of the Czech and Hungarian economies.