Constructors back to square one

The second half of August was not as calm as it could have been, given that this is the peak of the holiday season. Emerging markets fell under the baleful influence of the collapsing Turkish lira, which also fuelled the price slump in Poland. The situation in Turkey is a serious one, due to the size of the economy and how connected it is with the European banking system. However, the August turmoil did not last long – the diminishing threat of a trade war between China and the US, the excellent state of the American economy (GDP growth of more than 4 pct in Q2 and the lowest unemployment rate for twenty years), as well as the historic heights hit by the New York S&P 500 index, provided the global stock exchanges with the impetus they needed for stock purchases. And this happened despite the troubles in other emerging economies: Argentina and Brazil. If you factor in the data showing faltering growth in Europe, then there are quite a few reasons why the global mood might deteriorate. The main risk factor – the trade war between the world’s largest economies – is weakening because of more frequent high-level contacts between China and the US, which could herald lighter trade restrictions than expected. With the central bank finally entering the fray, the situation in Turkey has also stabilised. Contrary to the ‘recommendations’ of Turkish president Recep Erdoğan, the country has hiked up interest rates sharply in an attempt to bolster the ailing Turkish currency. The president has also issued a decree for all transactions, including those on the real estate market, to be closed in Turkish lira rather than the euro or the dollar. In Poland, meanwhile, the economy is still surging ahead (5.1 pct growth in Q2 2018). After a very good Q1, the structure is now slightly worse – there has been lower growth in investment, while private and public consumption remains at a high level, thus confirming that optimism is not well spread throughout the economy. And this is especially concerning given that the weakening situation in Europe is certain to impact the condition of the Polish economy sooner or later. August was quite a successful time for the Warsaw Stock market – considering the turbulence in Turkey. The indices were driven up by increases on developed markets, inflows from foreign investors, the healthy economic data as well as the adoption of the employee capital plans programme by the government. This scheme will require a constant inflow of cash to funds investing on the stock exchange, and this could well fuel further increases on the WSE. Around PLN 1–1.5 bln could be flowing into the stock market by as soon as next year and even as much as PLN 3 bln a year in the years that follow. The accumulation of good news plus the good Q2 company results combined with relatively low valuations had been fuelling analysts' hopes that the WIG20 could soon approach 2,500 points. Unfortunately, the beginning of September brought with it a few shocks to the system, which were not entirely economic in their nature. The arrest of the heads of the two investment funds prompted declines on the WSE resulting from fears that some funds would soon be forced to suspend their operations. This led to a spiral of sell-offs of investment units and plunging share prices. As a result, after a very good end of August, all the increases were wiped out in the first half of September. This was reflected in the falls in value of the main indexes. The construction companies index, which fell to levels not seen since the slump of 2012, as usual led the way. The general mood on the market is still very gloomy, as in just four weeks half of the companies surveyed suffered double-digit drops in their share prices. The growing prices of asphalt and concrete, the lack of new road and railway tenders and the shortage of labour – amounted to a long litany of bad news for the real estate and construction sectors. Erbud, which announced that while working on its Q2 report it was forced to re-calculate its margins due to the rising prices of raw materials and subcontractors, became a symbol of the malaise of the construction sector. As a result it now has the lowest share price in its history and has fallen by almost 40 pct in our ranking. In H1 Erbud registered a loss of almost PLN 30 mln and is unlikely to return to profit until 2019. The developers’ index recorded a loss of around 5 pct, falling to its lowest level in more than a year. The slide in the value of shares in Dom Development, which recorded a slightly weaker quarter in terms of apartment sales, is also worth noting. As construction costs rise, so margins in the sector will continue to fall, while the price of land for new projects goes up and so land banks shrink. On the demand side, the residential market is still being driven by the booming economy and low interest rates. Profitability remains high, even at levels of more than 30 pct. This is the result of the increase in home prices that in some places (major markets, according to Reas) have reached the same level as those of ten years ago, just before the financial crisis unleashed by the collapse of Lehman Brothers. ν (Mir)

Resilient neighbours

The stock markets in the Czech Republic and Hungary seemed to be somewhat immune to the perturbations on the Polish capital market, as they continued to reap the benefits from the positive global news rather than anything coming from Poland. The BUX registered a slight increase over the month (less than 1 pct). The PX50 in Prague experienced a stronger increase, gaining 2.5 pct. Since the beginning of the year, the BUX has moved back by 8 pct while the PX50 has gained 1 pct. The WIG20, which has lost ground by almost 10 pct, has been the worst performer of the three indexes this year