Christmas has come early?

Stock market report
Although in October and November the pandemic was still raging, investors could finally see the light – and maybe even a few of them, the end of the tunnel itself. As a result, the indices rose despite the recession and the restrictions as faith in a brighter future won out. More to the point, this faith was not unfounded

On November 24th, for the first time in history, the Dow Jones in New York rose to 30,000 points. This might seem surprising considering the coronavirus crisis had infected almost 60 mln people around the world, but recent weeks had been very kind to investors. Firstly, Joe Biden won the US presidential election. Although many believe that with the Democrats in the White House, taxes are sure to rise in the world’s most powerful country, the current incumbent, Donald Trump, has proven to be completely unpredictable. It’s hard to belittle the economic achievements of the Trump administration, which included the rapid growth of the stock market and record low unemployment just before the pandemic, but the president’s impulsiveness in international relations and his trade war with China injected much uncertainty into the financial markets. Moreover, Trump ignored the pandemic in the name of economic growth, which seems to be the mistake that buried his chances for re-election. Biden campaigned for the presidency on this very issue, which immediately gave him a massive advantage.

Just a few days after the announcement of the probable result (the electoral college, which makes the final decision, will meet in December), US pharmaceuticals giant Pfizer announced that it had developed a vaccine that is more than 90 pct effective. This information brought euphoria to the markets and investors began buying everything up like crazy, even though at the earliest the vaccine will be available from the beginning of next year. A few days later Moderna announced similar news, and in the second half of November, Astra Zeneca did the same. We are still waiting for news about other vaccines, such as one being developed by Johnson & Johnson. Everything seems to point to mass vaccinations starting in early 2021, which should ease the economic impact of the pandemic.

Now we come to the third reason for the markets to be cheerful. Of course, the second wave of the disease hit hard, particularly in Eastern Europe and in Poland, but its effects are not going to be so bad as they were with the spring wave. This is on the one hand due to the health service being better prepared, with procedures having already been put in place for treating the infected; and on the other, it’s due to a significantly less strict lockdown being imposed, which by the end of November hadn’t had any effect on industry. After 4–5 weeks of restrictions in Europe, we should see them loosened by the end of the year, mainly for economic reasons with the height of the Christmas shopping season yet to come. The economic fallout from the second wave should be much smaller, while the prospect of a vaccine is also encouraging investors to buy shares. The fears over a trade deal not being signed between the UK and the EU now seem of secondary importance, even though the risks are growing as the end of the year approaches. Despite Covid-19 spreading in a completely different way, the situation in Poland now seems like it was in Italy and Spain in March, and from the point of view of the Warsaw stock market, it isn’t very different from other countries. The optimism also spread to the trading floor, although the large gains of the index tracking Poland’s top companies suggest that much of the activity is coming from foreign investors. The WIG-20 rose by almost 10 pct over the previous month while the wider market index was up by over 8 pct.

But it is the construction segment that really stands out, which can be seen from its results for the first nine months and its particularly good performance in Q3. The effects of the pandemic have also had their good side and the future of the market looks quite positive, even if only because of the planned investment in roads and rail. In the railway segment, a tender is expected to be awarded soon worth several billion złoty for the work on rail connections to the Solidarity Transport Hub of Poland airport mega-project. Firms such as Torpol, which have shown a big improvement in the profitability of their contracts, are among those hoping to increase the size of their order books. Rising margins are one example of the impact on the market because of coronavirus, due to the slowdown and the improved negotiating position that general contractors now have with their subcontractors. There is also less pressure from rising wages. Many believe that this trend is set to grow stronger and margins will continue to rise. Constructors have also benefitted from the lifting of restrictions and have had no problems with their supply chains. Despite the economic slowdown, their order books are bulging. Mostostal Warszawa, for example, has reported a rise in orders of over 20 pct over the last year and, at the same time, it has seen all of its main business lines become more profitable. Budimex has grown by PLN 12.5 bln, of which PLN 7 bln comes from contracts signed over 9M 2020. Many analysts believe that healthy companies with diversified order books will be in investors’ sights over the coming months. It’s worth mentioning that the WIG-Bud has been one of the fastest-growing indices on the market, with only the WIG- Górnictwo and the WIG-Games outpacing it. Meanwhile, the WIG-Nieruchomości has seen a 13 pct fall since the start of the year. There’s nothing to suggest that the situation developers face is going to get any worse. It’s true that the October figures show a slowdown in new projects begun, but nothing like the scale that was seen in the spring, when starts were down by around 40 pct y-o-y. The later 20 pct decline could have worsened in November, but the economic fundamentals (including unemployment) remain strong and economic policy isn’t disrupting the segment’s growth. This can be seen from the number of homes under construction after 10 months (105,000). The low interest rates are making Poles look around for more profitable ways of investing their capital. (Mir)

A shot of optimism

In Budapest, the stock exchange reacted even better than in Warsaw to the news of a vaccine. The BUX rose 15 pct in a month, while in Prague the PX50 went up by 11 pct. With all these indexes the negative rates of return calculated from the beginning of 2020 are slowly but surely being clawed back.