Ending the year in good cheer

In Poland, this improvement in sentiment could be seen not only in terms of rising indexes, but also in higher trading volumes. One of the star performers of 2020 was the construction sub-index, which grew by over 50 pct. The boom continued through to the end of the year and at times was nothing short of euphoric. The vaccine rollout, which began just before the Christmas holidays, has also been a shot in the arm for investors. Even though we will have to wait until the summer for any return to was anything that even resembles a pre-Covid normal, the prospect of the overall situation improving and of a more predictable future has proven to be more than enough fuel for the stock exchanges. At the end of the year, a crucial decision was taken to pump USD 2 bln into the US economy, including in additional social payments. Moreover, a Brexit deal was finally agreed between the UK and the EU, thus putting behind us the ominous prospect of a no-deal scenario. Among all this good news, the industrial production figures turned out to be surprisingly healthy across Europe, where the sector has been doing great even through the second wave of the coronavirus. But in spite of all the optimism surging through the veins of the financial markets, there are still risks lurking ahead of us: one might be a potential spike in the infection rate in the new year, another is the spectre of new, even more infectious strains of the coronavirus emerging.

Nevertheless, 2020 turned out to be something of a roller-coaster ride for the world’s stock exchanges. In February and March, they succumbed to the kind of panic that hadn’t been seen for decades, before bouncing back relatively quickly in a surge of optimism that even picked up steam towards the end of the year. As a result, the US stock exchanges closed the year two points up with record highs for individual indexes. In Tokyo, the stock market soared to a 30-year high, while in Europe the trading floors also managed to make up the horrendous losses inflicted by the outbreak of the pandemic. According to the analysts, the high rates of return on the American stock exchanges will mean that emerging markets will be the centre of interest over 2021 – especially those in Asia. This is a region that is being reinvigorated by the recovery of the Chinese economy, while also having been relatively less impacted by the Covid-19 outbreak and having strong internal markets.

The key to assessing the condition of emerging markets should be how they have coped so far with the pandemic. This is why South and Latin America have not yet been among the beneficiaries of the recovery. Emerging countries in Europe, including Poland, are finding themselves somewhere in the middle. Yet it’s still worth pointing out that these factors have been boosting the Warsaw Stock Exchange to a certain degree. First of all, Allegro enjoyed a record-breaking IPO, helping to redress the rather negative trend of fewer IPOs and growing numbers of companies de-listing. There were a number of other well-publicised debuts that helped to increase the turnover on the Warsaw trading floor, but in December the activity reached record levels anyway, coming close to PLN 2 bln a day. Everyone has been trading: foreign investors on the back of the wave of global optimism, Polish institutional investors, including funds with fresh capital, as a result of low interest rates, as well as individual investors looking for more profits on a market that has seen unbroken growth since March. The economic forecasts for Germany are good, with projected growth of 4 pct over 2021, as well as for Poland, which after having suffering a fall of around 3 pct should see GDP rise to over 4 pct. Consumer spending should initially recover and followed later by investment. How is all of this likely to affect the construction sector, which accounted for a large share of Polish GDP in 2020? Last year the WIG-Bud index rose by over 50 pct, while the broader market indexes saw a slight fall. The strength of the WIG-Bud reflected the relative resilience of the sector in the face of Covid-19 (as a result of construction work continuing) together with some solid data – the total value of construction work over the first eleven months of the year fell by 3 pct y-o-y, with infrastructure construction down by almost 2 pct. The projections for 2021 are only moderate – at the start of the emergency, most people held the opinion that its impact on the construction sector would only become apparent after some time, mainly as a result of the slowdown in investment. The key thing in assessing the future of the sector is how much money will come from the EU budget and how effectively these funds will be used. What government agencies are going to will, therefore, be crucial, since they will be responsible for investing billions in the modernisation and construction of both roads and railways. Meanwhile, the return on investment seen by construction companies over 2020 ranges from the decent to the impressive. Only a few construction companies made losses, mainly due to legal issues that date back to before the pandemic. Investors were have also been delighted by the fact that their order books are so full – in some cases with a record high value of orders – as well as rising construction costs no longer being a factor. Although the growth opportunities may seem limited, it has to be remembered that the sector could still be given a further boost by the situation on the wider market – the next few months could turn out to be a very lucrative time for constructors if the economy starts growing again or if funds decide to empty their deposit accounts straight onto the trading floor.

When it comes to the development sector, the real estate sub-index lost 4 pct over 2020, which was in line with the broader market. Investors have been accustoming themselves for many years to strength of residential developers – and many in the segment recorded double-digit growth in 2020; but this is a sector where the impact of the coronavirus could be felt immediately, with spring sales being put on hold and the pandemic-induced anxiety lasting for many long months. However, at the moment everything seems to be much more rosy. In October, the figure for the volume of mortgages signed was its highest since 2014. One of the main reasons for this was the low interest rates and the fact that apartments are seen as an inflation-proof investment. The prospect of a return to normality has also been pushing up apartment sales and their prices.

INDEXES MOVING IN TANDEM

The rates of return of all the stock exchanges in the region were remarkably consistent throughout 2020: both the BUX in Budapest and the PX50 in Prague lost almost 10 pct – just like the WIG 20.