Warsaw in record-breaking form

Stock market report
The news of a new coronavirus variant did little to dampen the optimism of stock market investors. Fears of inflation, however, proved more effective in this regard, but June still saw stock markets in the US break new records and the WIG rising to its long-awaited historic peak. The sector indexes have entered a calmer period, but talk has been growing louder that the residential development market might be becoming a little too overheated

Although Covid hasn’t released its grip on many parts of the world, it is no longer putting such a dampener on the mood of investors. Both in Europe and the US, the number of vaccinations has reached such a high level that with the seasonal lull in the number of cases most restrictions can be lifted and economies allowed to recover. This can be seen as the economic growth projections are, one-by-one, being raised by economists and international financial institutions – and confirmation of their predictions can already be seen in the partial data emerging from particular economies. The only fly in the ointment is the spectre of inflation, which could take off just as economies start to recover. Some central banks, such as the Hungarian state bank, have already started raising interest rates. Investors have, however, not been spooked enough by the prospect of inflation to prevent the indexes ratcheting up to new records. In June records were broken by the US Nasdaq, the CAC40 in Paris, the Hungarian BUX and the Senex in India. And the wider WIG market also joined in, reaching its historic high of over 68,100 points. The Warsaw Stock Exchange had been waiting for this milestone since January 2018, although on a month-to-month basis the climb of the WIG has been nothing spectacular. Many analysts believe that the summer will see the WIG index climb still higher, while the index of the most valuable companies, the WIG 20, is also set to continue its upward trajectory.

This is because economists believe that all sectors of the economy are recovering. Industrial production in the second quarter rose sharply, although this was largely due to growing from a low base (in the spring of 2020 the country was under lockdown). Analysts believe that due to the level of production and the resulting rise in exports, GDP growth is set to return to around 5 pct. After the lifting of the restrictions on trade, retail should grow by double digits. The construction sector has also seen a recovery.

For the first time in two years, the construction industry has been experiencing year-on-year growth. Infrastructure construction is on the rise and its strong projected growth has also been given a boost by the passing of another EU budget. The growth in May of 4.2 pct turned out to be three times higher than what the economists had been forecasting, while the month also set a new record in terms of new projects started and building permits granted. In the first five months of 2021, residential developers began work on 72,000 sqm of new homes – 64 pct higher than in the same period of the previous year. How much this sector has been heating up can be seen by comparing the data from before the pandemic – in 2019 the growth was as high as 30 pct. The stable and steady rise in the prices for homes has been pushing up the prices of construction materials; and because economies are recovering across Europe, general contractors are also having problems with the supply of components, including those made of steel or affected by rising oil prices. At the moment there has been no wavering in the demand for housing, which has been improving the business prospects of residential developers and pushing up the WIG-Nieruchomości index – by over 25 pct over the last six months. The situation on the market also means that resi-developers are also having no problems with raising financing – such as when it comes to building up their land banks. Robyg recently raised PLN 150 mln for land acquisitions and plans to spend up to PLN 600 mln on such purchases this year. GTC managed to raise much, much more – around PLN 2.3 bln from a bond issue. The developer certainly couldn’t complain about any lack of interest: for its EUR 500 mln bond issue it took subscriptions worth EUR 1.4 bln. The company generates annual revenues of around EUR 160 mln. One interesting debut on the stock exchange this summer will be Onde, part of the Erbud group. It is to issue new shares, while a proportion of its shares owned by Erbud are also to be offered to investors. The company specialises in installations for generating electricity from renewable sources – and analysts are giving a higher valuation to the shares of the subsidiary than for its parent company. It could be worth more than PLN 1.5 bln. The shares on offer have a combined value of PLN 440 mln, with the new Onde shares making up PLN 200 mln of the total.

Records broken and missed

It wasn’t only the WIG that put in a record month. The BUX also broke its all-time record in June, coming close to 50,000 points. After a good May for the PX 50 in Prague, June wasn’t so impressive – but bucking the trend has been seen on both on developed and emerging markets. The PX 50 saw a slight fall, with the Czech index failing to beat its all-time record.