New year bonuses

Question marks are still lingering over the global stock exchanges, however. Brexit (and the potential chaos it might lead to) as well as how the Chinese economy might react to its trade dispute with the US, remain significant risk factors. The more relaxed attitude of the US central bank to interest rate increases gave the emerging markets a starring role in the early part of the year. Investors have started shopping again, while the stock markets in such countries as Argentina, Egypt, Turkey and Brazil have shot up, even achieving double-digit increases during the first month and a half of 2019. And the Warsaw Stock Exchange has also been among the beneficiaries of all this. It not only had a good start to the year but its y-o-y turnover was higher too. Poland is still one of the leading lights when it comes to economic growth, which is basically being driven by such factors as the healthy situation of the labour market, the level of consumption and the inflow of EU funds. And we have to bear in mind that PLN 103 bln was allocated by the European Union for infrastructure investment over the 2014–2020 period. A large part of this has already been earmarked for actual projects, but the payments actually approved constitute much less than half of the amount. This is a result of problems with the selection of contractors who, at the tender stage, have been submitting cost estimates several hundred million złoty above the expectations of public institutions. Since the beginning of the year, the two largest clients – the General Directorate for National Roads and Motorways [GDDKiA] and the Polish State Railways [PKP Polskie Linie Kolejowe] – have agreed to an indexation of prices in contracts, but for new tenders only. The companies that this does not apply to, however, will have to take their grievances to the courts. That is why the CEO of the sector’s market leader, Budimex, is expecting a difficult year due to the negative impact of the high prices of labour and materials. The construction giant ended 2018 with a profit of just over PLN 300 mln – around 30 pct less than a year earlier. Unibep, meanwhile, has had a very good start, with its share price increasing by more than 30 pct since the beginning of the year. According to the firm’s preliminary results for 2018, it generated higher revenues as well as a profit of PLN 27.5 mln – 3.5 pct more than a year ago. Unibep, however, is not in the race for infrastructure projects but is instead able to take advantage of the rude health of the residential development business. Things are also looking promising for Erbud, which struggled in the summer of 2018. Its share price has been growing and analysts are seeing the potential for further growth. The company has been gaining added strength from the diversity of the projects it has taken on, including renovations to wind farms. As a result of all this, WIG-Construction registered a slight increase despite the share price fluctuations of construction companies. A clear bounce has occurred on the WIG-Real Estate index since the new year. With an impressive January under its belt, it has managed to return to levels unseen since last summer. Contributing to its strong growth was the share price of state-owned Polski Holding Nieruchomości, which manages assets worth around PLN 2.5 bln and is currently preparing a new strategy. The share prices of Marvipol, Atal and, to a lesser extent, Dom Development have also increased. In the case of the latter company, some had initially been warning that there might be supply-side problems on its primary market, Warsaw, resulting from the lack of land for new projects, among other issues. Analysts are divided on how to assess the good start to the year for the real estate sector – some are seeing it as a mere correction because the market seems to have already peaked. Problems related to costs and project delays due to administrative decisions are limiting the scope for healthy profits (and dividends). On the positive side, the positive economic climate and low interest rates are still with us. The share price of J.W. Construction has also been on an upwards curve. Ronson and Archicom are also buying their own shares back. Polnord, however, has not been among the beneficiaries of the increases of the WIG-Real Estate index. In mid-January conflicts arose between the developer’s shareholders after a series of announcements from its largest shareholder, holding 20 pct of its shares – Cypriot company Hanapeta Holdings. For many months Polnord has been planning to expand the company further, possibly involving a sale of a stake in the company to a strategic investor. Hanapeta’s representatives, in the meantime, have been pointing out the many problems the company is currently beset with, and doing so on the pages of business daily ‘Puls Biznesu’. These include the low sales of its apartments in spite of the healthy market, the lack of information about its current operations, and the absence of real estate market specialists on the company's supervisory board. It is worth noting that the people behind Hanapeta are the Duo Private Equity fund, which manages EUR 5 bln of assets. ν (Mir)

Neighbours in bloom

The WIG20 was not the only index in the region to reap the benefits of the positive mood across the emerging markets. The Budapest BUX has gained more than 3 pct since the beginning of the year, hitting its historic highs. The smaller Prague stock exchange managed to do even better, with the PX 50 gaining more than 7.5 pct.