Covid strikes again

The surge in new infections, despite its huge scale, has not led to the kind of panic as was seen in the spring. This has been evident in how the stock markets are behaving. There’s little chance of the sort of index meltdown we saw in February and March. In fact, some reputable investment banks have been suggesting that the indexes would have collapsed anyway, even without the coronavirus. Nonetheless, investors are still in something of a pandemic-induced panic, as was best demonstrated by the market’s sharp reaction when Donald Trump became infected. Investors are also worried by the upcoming US presidential election, with a victory for Joe Biden in October now looking more likely than the re-election of Donald Trump. The question of whether US economic policy is set to change hangs heavily in the air, not only when it comes to economic stimulus and taxation, but also in terms of US relations with China, which have proven to be crucial over the last few years. The Asian superpower, meanwhile, appears to have been the only winner so far in 2020 – not only do the official statistics show that the spread of Covid-19 has been halted there, but its economy bounced back in the third quarter with an enviable growth rate of 5 pct – although lower than most analysts had been predicting. Industry and exports from China have revived, although the figures look worse for private consumption.

In Europe, on the other hand, the coronavirus has returned with a vengeance: each day the number of new cases in the CEE region is in the tens of thousands, with new records continually being set in Poland, the Czech Republic and Ukraine for the numbers diagnosed, thus dashing all hopes that Central Europe would emerge from the crisis relatively unscathed. Even more unease is being generated across the continent by the prospect of a hard Brexit – this half-forgotten problem has now come back to haunt the markets, since the failure to reach an economic cooperation agreement could severely impact an EU economy already weakened by the coronavirus. Memories of the rapid recovery of investor sentiment and the economic rebound in the summer have already faded. The indicators are again showing a weakening in the mood for both businesses and consumers. The economy now faces a long winter ahead of it – although despite everything things should be easier than in the spring, as the possibility recedes of disruptions in the delivery of goods, while companies and health services are now better prepared. The markets are also hoping that a vaccine will finally become available at the beginning of 2021.

Returning to the last few weeks, there has been a weakening in the indexes – both for the wider market and also for individual sectors. The Warsaw stock exchange has recently contrasted poorly against the performance of other markets, where the falls were smaller, and in particular in comparison to the US, where the S&P500 index has soared to around its historic high. In Poland the WIG 20 was the index that suffered the largest slump; however, the real estate sub-index has been the most resilient to the unease, as a result of developers (especially those in the residential sector) still showing signs of rude health. The best performers have been those that still have large numbers of apartments for sale. The fact that the mortgage financing tap has been turned off hasn’t actually made much of a difference, due to a wave of capital coming onto the residential market from the liquidation of investments that turned out to be totally unattractive for those looking for the best returns on their capital. Even following the resurgence of the pandemic, the banking data for September reveals a situation that is improving – for the first time since the Covid outbreak the credit market has shown signs of life and demand has grown. If a total lockdown is not re-imposed, developers should still be able to look back fondly on the relatively decent performance of the market over the last few months. Unsurprisingly, the dividend pay-outs that were cancelled in the spring are now being made by some developers. For example, Archicom is to pay its investors PLN 2.53 per share. Another effect of developers registering high sales is that they can more easily raise capital by issuing bonds to debt funds, which are looking for attractive businesses with growth potential. Other companies that have issued bonds or announced that they will do so include Ronson, Atal, Dom Development, Develia, Echo Investment and Marvipol.

The situation for construction appears to be somewhat different, since the impact of the pandemic on this market was felt on the later than for the rest of the economy. In August the sector suffered a two-figure decline – its second in a row. This wasn’t down to shrinking public investment in roads and railways but a reduction in the volume of small private investment projects. However, some construction firms are now looking to diversify – including Budimex, which has been developing an interest in the waste disposal sector. The returns of up to 10 pct that it has made through its subsidiary FB Serwis have a very tempting look about them, and further motivation has been provided by the announcement that restrictions on constructing incinerators are to be lifted. The construction giant has not ruled out leaving the residential sector to concentrate on this new business, since it sees little further growth potential for the group in building apartment blocks. (Mir)

Warsaw the worst out of three

The weakness of the Polish stock exchange is best seen by comparison with the other bourses in the region. The BUX in Budapest has risen 4 pct over the last month, while in Prague the PX 50 has gone up by 1 pct. Despite this, since the beginning of the year, all three indexes have seen a similar declines of between 22 pct and 26 pct.