The slowdown and the shocks

Autumn has been quite a turbulent time for the global economy. One major worry has been the US’s trade war with China, which has been preying on share investors’ minds resulting in declines on the Chinese stock exchanges. But this has been added to by other concerns. Italy’s budgetary problems not only raise the question of how much its economy is tied to the European and global financial and economic system, but it has also been fuelling discussions about the future of the eurozone. The conflict between the eurosceptic government in Rome and the European Commission has been having a strong negative impact on the stock exchanges, and this was especially the case in October. There have also been key developments in the saga of Britain’s exit from the EU. Theresa May’s cabinet has been rocked by a number of resignations, but this does not mean that the UK will not be leaving the community after all – and it again raises questions about how the EU will itself absorb the shock to its system of Britain leaving. All of this has been accompanied by a weakening of the European economies, above all Germany, which is of key importance for the eurozone (as well as to Poland). In Q3 the German economy grew by 1.1 pct y-o-y, whereas between March and June the growth amounted to 2.3 pct. Thus it is performing weaker than analysts had expected. Across the entire eurozone the GDP growth was 1.7 pct, compared to 2.2 pct in Q3 a year ago.

In the US the economy is still in a high gear, but there have been no shortage of shocks. The ever more visible conflict between the Fed and the White House against the backdrop of increasingly likely hikes in interest rates, has been casting a shadow over the economic forecasts, while the unresolved outcome of the US mid-term elections has placed a question mark over the future of the President himself. If you add a weakening China into the mix (6.5 pct GDP growth in Q3 – the lowest since 2009) due to the customs war with the US, there is little reason for global optimism. In Poland, meanwhile, the economic situation is still relatively idyllic. Its Q3 growth amounted to 5.1 pct, beating the most optimistic forecasts of economists, who had been expecting a slowdown to occur. The Polish economy continues to exhibit the fastest growth in the European Union, of above 5 pct lasted for five quarters in a row. In November, however, the stock exchange was rocked by a bribery scandal, which has now led to the arrest of the chairman of the Polish Financial Supervision Authority (KNF). This is turn has hit the share prices of banks, which are strongly represented on the WSE. Both the WIG and WIG20 recorded moderate slides. WIG-Construction was at its lowest, while WIG-Real Estate registered an almost 2 pct increase. The construction index has lost more than 30 pct since the beginning of the year and is now the second weakest sector index of the stock exchange. The WIG suffered a loss of 13 pct and the developer index was down by
8 pct. Signs have been emerging of a likely return to prices last seen in 2007–2008 and an overheating of the residential development market. The experts are pointing out, however, that the nature of this growth is different – ten years ago there was a struggle to achieve margins, whereas in 2018 developers are just looking to protect margins of 20 pct. Poles are also more affluent and interest rates are only half of what they were back then. Therefore we are not looking at any kind of collapse, but a slowdown is likely. According to the analysts, this year will not be as good as 2017 in terms of home sales, but it should not be worse than 2016. Residential developers are not hitting the brakes and scrapping their ambitious plans. Dom Development wants to strengthen its position in large cities and so has invested PLN 180 mln in land this year. In nine months the company earned PLN 98 mln compared to PLN 74 mln a year ago. Q3 was also a successful period for other residential developers – even if their profits did not grow as much as Dom Development, Lokum Developer or Ronson. Expectations have fallen sharply in the construction sector over the last few months, which could actually make pleasant surprises more possible. Investors welcomed the latest results published by Erbud – one of the anti-heroes of the Q2 publication season, when it revealed it would have to recalculate the profitability of its contracts, resulting in its share price plunging. Its Q3 report, however, was much better – its margin was at last year's level, its order portfolio slightly bigger than a year ago (PLN 2.5 bln) and with a net profit of PLN 5.1 mln, which means that at the end of the quarter its losses had decreased to PLN 25 mln. However, investors were probably happier about the large reduction in its net debt, by 50 pct compared to the end of June 2018. Compared to the rest of the sector, Budimex is also going through a period of high profitability and it can now boasts an order portfolio worth more than PLN 11 bln. Although its net profit is down, by almost 30 pct in Q3, share investors are recognising that it is nonetheless in rude health. Budimex’s stock was among the few that went up over the month, which went some way towards off-setting the overall decline in the construction companies index. ν (Mir)

Near the summit in Budapest

The BUX index in Hungary enjoyed an almost 6 pct increase over the month, bringing it back to its May heights and close to its historical peak of just over 40,000. This comes as the small Hungarian stock exchange continues to benefit from the health of the domestic economy, which is growing at a rate of around 5 pct. The Czech stock exchange index, however, lost 1.7 pct over the last month.