Weaker in Warsaw and across the world

At the end of last year, many people were probably looking back fondly at 2017 – a year of double-digit growth for the world’s main indexes, when there were no real shocks and market volatility was at a minimum. The US and euro zone economies were both thriving as low interest rates persisted. Unfortunately, 2018 turned out to be quite a different story altogether, as all the major indexes registered losses. The US stock exchanges were the strongest relatively speaking, only suffering single-digit declines. This was mainly due to the continued acceleration of the American economy, which remained vigorous despite monetary policy being tightened. Unemployment has been held in check and consumer sentiment remains high. The main threat to growth is the trade war between the US and China; but as some analysts have noted, it is not having as serious an impact on either of the two economies as it is on emerging markets. The Chinese economy has been slowing down for several quarters (from GDP growth of 7 pct in early 2017 to 6.5 pct in Q3 2018 – its lowest in a decade). And this worrying trend has been reflected in the performance of the country’s stock exchange. The Shanghai Composite index was down by 25 pct over the year, prompting the Chinese government to introduce a number of measures including tax cuts. Europe’s stock exchanges also took a hit in 2018, but to a lesser degree: the Frankfurt DAX lost 18 pct and London FTSE went down by 12 pct. This was partially due to the economic frailty that was clearly evident at the end of the year. Germany in Q3 saw its weakest economic data since 2015, while the entire eurozone economy grew by just 0.2 pct over the quarter. All of this is in contrast to the Polish economy, which has put in another very good year with annual growth somewhere between 4.5 pct and 5 pct – its highest since 2011. And things are unlikely to deteriorate much if at all in 2019, because, economists predict Polish growth will only weaken by about 1 pp. Unfortunately, decisions to invest in the shares of Warsaw-listed companies are not based on the macro data. The WSE has been beating a retreat for the last 5–6 years and 2018 brought with it more body blows, starting with the fraud scandal surrounding debt collecting bank GetBack, whose stock exchange debut had been one of the largest of recent times – and now a lack of new listings is becoming another problem for the WSE. Added to this are the often confusing actions of the owner of some of the largest companies on the stock exchange, the government, such as issuing compensation for hikes in the price of electricity, eroding the credibility of the Polish Financial Supervision Authority, and showing a lack of interest (or even understanding) of how the stock exchange works. Given all this, the fact that the WIG and the WIG20 both fell by between 7 pct and 10 pct in 2018 should come as no surprise. The fall in the WSE’s turnover (by 20 pct over 2018) has been dramatic, as well as its overall contraction – in 2018, the stock exchange was abandoned by a record number of 22 companies, while the number of new listings, 7, was the lowest in 15 years.

So what does 2019 have in store? Economically, things will probably be good, but it has to be remembered that this year parliamentary elections lie ahead of us. The Employee Capital Plan pension scheme is also to be launched in H2. Not only is this designed to raise pensions but it should also liven up the capital market (injecting several billion złoty into the stock market every year). However, it still seems that this will not be enough to increase the interest of the wider population in the stock exchange or even in investment funds (in Poland PLN 800 bln is held in bank deposits, but individual investors only account for 12 pct of this). For the construction sector, 2018 was a very poor year – the WIG-Construction index slumped by 30 pct – and only a much better Q4 (when it was one of the few indexes to improve) allowed it to avoid finishing the year in last place, ahead of WIG-Chemia (down by a 40 pct drop over the entire year). The developers’ index also had to endure a rather bad time: WIG-Real Estate was almost 15 pct down by the end of the year. The number of development projects shrank (partly due to soaring construction costs), while sales revenues were also not as good as in 2017. The huge dividend volume (more than PLN 600 mln) out of the 2017 profits also suggested that the market might have jumped the shark. For the construction sector, analysts estimate that the unfavourable climate will continue in terms of the pressure on pay in the sector as well as the high costs of materials, which are both having the effect of limiting margins. As was the case a few years ago, it will be firms involved in state-commissioned infrastructural projects that are the most likely to find themselves in difficulties. ν (Mir)

Contrasting fortunes for the neighbours

Last year was a moderately good one for the BUX index in Budapest. Unlike the stock exchanges of developed markets or even the Polish WIG, the Hungarian index managed to more than hold its own over the twelve months. At the beginning of December, the BUX for the second time last year hit the 41,000 point threshold – its highest level in history. The Prague PX index, meanwhile, fell by almost 4.5 pct throughout last year.