Not quite there yet

In mid-March, the global stock exchanges hit a low point due to the latest fit of pandemic-induced jitters. But almost a month of declines was followed by a sudden spurt that made up for these losses, and on some trading floors (especially those over the ocean) a bull market has even been unleashed, resulting in historic highs. Market analysts, however, believe that the current situation, with the Dow Jones having broken yet another record, could be the peak of the boom. This conviction comes from the fact that the US economy is beginning to pick up steam due to the rapid roll-out of the vaccination programme (over 100 mln jabs in the first half of March), which means the situation should return to normal in the second half of the year. Joe Biden is also poised to upend consumer spending by handing over billions of dollars of support to US families. But somewhere over the horizon lurk the tax rises needed to finance the USD 1.9 tln package to reconstruct the economy after the pandemic. In the short term we might see interest rate rises and a lack of support from the Fed for liquidity on the market. The economy seems to be in decidedly better shape in the US than it does in Europe, where the Covid effects are still being keenly felt and the easing of restrictions has been slow. Here we cannot expect a return to normality until the second half of the year. Under such circumstances, the Warsaw Stock Exchange has gone into a sideways trend – the WIG is approaching 60,000 points, around the same level as before the latest pandemic panic. The WIG20 is a little lower than in February. But the good times for the sector’s indices are still with us. Over the last year the WIG Bud construction index has risen by more than 100 pct, while the WIG-Nieruchomości developers’ index has gone up by 30 pct. The latter has had a healthy start to the year, with growth of over 10 pct. Residential developers are generally in high spirits due to the rising WIG-Nieruchomości as well as the hard economic data. January turned out to be the month when work began on the largest ever number of apartments and the number of credit agreements signed for them was exactly what it was a year ago, before the first lockdown. The average value of mortgages also rose. The market has been heated up by those looking for somewhere to put their savings (Poland has the highest inflation rate in the EU) as well as those who are just looking to buy such property because so far there has been no hard landing and unemployment is the lowest in Europe. The third wave of the coronavirus has slightly dented the optimism (another lockdown could spell disaster for many sectors and those who work in them), but if the vaccination programme is stepped up in the second quarter, the pandemic should then have a dwindling effect on the economy and the residential market.

Dom Development managed to put in a very creditable performance despite the fall in the number of homes it handed over – and has even excited investors by generating revenues of almost PLN 2 bln with a margin of more than 30 pct. Raising the temperature even further was its announcement of a dividend of PLN 10 per share. If this wasn’t enough, the developer is now looking to enter a new local market. It is already present in Wrocław and the TriCity, but has decided the time has come to turn to Kraków, a market it is entering by acquiring local developer Sento. Another company on the Warsaw Stock Exchange is also looking to Kraków in the hope of rebuilding its sales. Lokum suffered a 33 pct slump in its revenues and in its consolidated profit by as much as 69 pct. The company believes that this year should be much better and expects to have handed over 1,000 units by the end of the year – twice the number recorded in 2020. The company also intends to develop a project for the institutional rental market, which market analysts believe is going to grow rapidly over the coming years. Another stock exchange-listed company, Dekpol, has signed a contract to build a 300-unit residential project in Wrocław for an international fund, while Marvipol has entered into a similar transaction. Neither contract is very big on the European scale (where the market is worth EUR 50 bln), but there is no doubt that this segment is set to expand significantly. Construction firms have also been announcing their results. Budimex, which this year has been trading at its highest ever price, was able to publish some excellent figures for 2020, having doubled its profit compared to 2019. It also had a record number of orders (PLN 9 bln) and a higher margin. Such numbers have made quite an impression, especially given the pandemic. The company is predicting more revenue growth this year (coming in last year at PLN 7.5 bln) and wants to develop its service divisions at the expense of its development arm, which it has sold for PLN 1.5 bln. The proceeds of this are to be invested in (among others) the operations of its subsidiary FB Serwis.

Almost normal next door

Over the previous month, the PX index in Prague rose by over 3 pct, which brings its growth since the beginning of the year to more than 6 pct. Over this time the BUX in Budapest rose by just a little less, with its behaviour over the past month more similar to the WIG and WIG20 in Poland. None of these three indices (the BUX, PX or WIG20) have yet returned to the levels before the pandemic sell-off in February and March last year.