War takes centre stage

The invasion of Ukraine came at an already uneasy time for the world’s stock exchanges. In fact, the only piece of good news at the beginning of 2022 was (according to investors) the diminished Covid-19 risk. After two years of the pandemic, this factor was clearly losing its significance anyway in the face of rising inflation and the global trend for increased interest rates – and it faded even further, when on February 24th, Russia decided to launch a war. Although the initial reaction was that of panic (the WIG-20 fell by 11 pct), a month later such losses could be said to have been recouped, while for trading floors in Western Europe and the US, the losses were single-digit. The war has raised the price of commodities and is undoubtedly going to exacerbate inflationary pressures, especially in countries such as Poland, where it has weakened local currencies. At the end of March, it was hard to say how the war would eventually play out in terms of economic growth, because the effect of isolating Russia both economically and financially (above all due to the decision to ban imports from Russia and the resultant fall in the supply of not just fossil fuels but of many raw materials) is still unknown. For the moment, the impact on the Polish stock exchange has been limited, because the slowdown in the economy from a very high-level growth was unstoppable anyway, especially when it comes to industrial production. This has now, however, become very evident (for example, in consumer mood surveys), with a slowdown in consumption, on top of which interest rates are rising.

The main interest rate now stands at 3.5 pct while the credit interest rate (WIBOR) is closer to 5 pct. As a result, service charges are growing on loans already granted, which is accompanied by decreased credit-worthiness and a reduced willingness to take on debt when buying a home. In February, the number of mortgages granted was down by 14 pct year-on-year (even though the war didn’t start until the end of that month) and the number of loans was down by almost a quarter (24.3 pct). Added to this was the of prospect of the Financial Supervision Commission bringing new regulations into force in the spring that will make banks more cautious when it comes to granting mortgages. The recent hikes in interest rates and investment costs clearly contributed to the plunging number of residential projects launched in January (-40 pct), bringing the level down to only a little above what it was two years ago during the pandemic lockdown. The largest residential developers on the WSE have said that they expect some disruption to the demand, but not a crash. On the new apartment supply side, prices are having a negative impact on plans and the rate of development, as is the supply of raw materials and the sudden drop in labour due to Ukrainians returning home to fight for their homeland. On the other hand, it is still not known how the wave of refugees is going to change the apartment market over the long term, since in the short term the number of available apartments for rent has suddenly shrunk. Developers are, above all, concentrating on maintaining their margins. We will find out much more about their mood from the Q1 results, particularly from the number of apartments sold and especially the margins earned. If companies decide to make rough forecasts in these uncertain times, this means that they are expecting their sales and profits to be a little lower.

Commercial developers are, nevertheless, looking ahead optimistically, as such warehouse developers as MLP expect strong demand and to add to their rental portfolios. This mood is being boosted by the solid trend for production moving from Asia to Europe, the unstoppable growth of e-commerce and the greater attention being paid to ensuring supply chains do not fail. Companies in the tourism industry also have a positive view of the future – hotel chain Interferie has posted better results than in 2020 during the pandemic.

The period was also the time that construction firms traditionally sum up the past year, which turned out to be quite successful for them. Their order books grew (Mirbud could boast a figure of almost PLN 5 bln at the end of 2021), and so did net profits and revenues. The high profits being generated mean that they can now be distributed to shareholders. Budimex (which saw operating profits rise by 15 pct in 2021) has already declared that it intends to pay a dividend of PLN 23 per share, which together with the preliminary payment of almost PLN 15 per share made in October will be the highest dividend ever paid out by the group. Those firms involved in the construction and modernisation of the Polish railway network were buoyed by the announcement of new tenders worth around PLN 12 bln, but concerns remain over problems in the supply of steel and the fact the EU is continuing to block funds for the National Reconstruction Plan. (Mir)