Going viral

It soon became apparent that the drastic measures taken by the Chinese authorities to curb the progress of the epidemic would not be enough to reduce its economic impact: after all, China supplies the global economy not only with raw materials but also has around three million production plants. The conclusion from a supply chain analysis of the various sectors affected was that after a dozen or so days the coronavirus could actually trigger a financial crisis, since it would paralyse an economically important region of China and thus the entire Chinese economy that is still having to absorb the effects of the slowdown and the trade war with the US. The Chinese central bank has responded by lowering interest rates and supporting the interbank system with CNY 300 bln in loans. The IMF has since reduced its forecasts for global economic growth to 3.3 pct and further downward revisions are possible as the virus spreads. Transport, logistics, mining and tourism are the sectors that have been impacted most by the epidemic. In Europe, the main event of early 2020 was the materialisation of Brexit, although its main aspect – the trade negotiations – remain the subject of further negotiations, thus continuing to sow uncertainty in the minds of those considering doing business in Britain. Of the larger economies, the US has been performing the best. Encouraging employment figures and increases in consumer loans have given investors greater optimism about the country’s stock market, which has been buoyed by the company results for the last quarter of last year – when well over half of them published results better than analysts’ expectations. This has pushed the S&P500 index up to around its highest historical level.

The indices in Poland have come under pressure due to the negative global sentiment induced by the coronavirus, but also as a result of the deteriorating health of large state-owned firms – mining and energy companies have now been joined by others as a cause for concern for investors, as a result of the increasingly obvious political interference in these businesses. The economy has been slowing – in Q4 the increase was 3.1 pct in annual terms compared to 3.9 and 4.6 pct in previous quarters. However, the Polish economy is still at the forefront of European countries in terms of the GDP growth and should remain so – at least according to European Commission forecasts. The good economic data, however, has been having little effect on the Warsaw Stock Exchange – investors have got used to it. The launch of employee capital plans payments, which will start this year, could give the WSE a boost. The snag is that the programme has yet to be embraced by the Polish public, which has apparently lost confidence in this form of saving after the dismantling of the state open pension fund scheme over the last few years. However, the estimates are that around PLN 2–3 bln could be channelled into the stock exchange in 2020 by the replacement scheme along with around PLN 4 bln next year.

Since the beginning of the year, the main WIG index has lost almost 1 pct and the WIG 20 almost 3 pct. The sector indexes performed much better – WIG-Construction has gained 4 pct and WIG-Real Estate more than 6 pct. The construction segment has also had a pleasant surprise – after a three-month slowdown, the warm January resulted in construction and assembly production growing by 6.5 pct y-o-y. The economic slowdown has also put the brakes on rising material prices as well as salaries. However, the construction sector is still suffering from labour shortages and concerns are growing about the opening up of the German market to Ukrainian workers. Developers enjoyed an even better start to the year, with their index increasing by more than 6 pct to levels not seen since 2011. In an interview with business journal Parkiet, the head of Dom Development – one of the best performers of the real estate index – declared that the potential is still there for prices to rise and the current costs have not been an impediment to doing business. He also announced projects in cities other than Warsaw. The promising prospects for the sector have recently prompted a slew of takeovers of Polish companies by foreign players – Murapol, which has a controlling stake in stock-exchange listed Awbud, has been acquired by a joint venture formed by US fund Ares and Griffin Real Estate – both private equity funds. Hungarian players are also getting in on the act: Wing now holds a 56 pct stake in Echo Investment, while the new owner of Polnord is Cordia, which owns almost 66 pct of the Polish company. Both new owners insists that they have no intention of withdrawing the companies they have acquired from the Warsaw Stock Exchange. (Mir)

Resistant Hungarians

The BUX in Budapest has turned out to be the most resistant to the general slide in the indexes since the beginning of the year – its loss of 0.3 pct has been marginal, especially bearing in mind the fact that BUX has recently hit its historically peak. The PX50 in Prague – just like the WIG 20 – recorded a decrease of more than 2 pct.