Here comes the sun?

Stock market report
After all the pain from soaring inflation, interest rate hikes and the looming prospect of a recession, the beginning of summer has brought a sigh of relief and an air of optimism. Could it be that the downturn won’t be so deep and that central banks are not going to overreact?

On the other hand, the somewhat better mood on the stock exchanges could be a reaction to the falling indexes seen around the world in the spring. Inflation is taking a grip in both the US in and the eurozone as well as in emerging markets – and so central banks want to limit the money supply in their economies by raising interest rates, which includes the money that, as a result of the expansionary monetary policies of the last few years, caused indexes to spike during the pandemic and led to problems with supply chains. The last few years have shown that the economy was able to handle the pandemic and the lockdowns, so maybe a period of higher inflation would not result in the economy slowing down significantly. Such hopes seemed more credible after the summer rebound on the stock markets in Europe and the US. The hard economic data suggests that the tightening of monetary policy through interest rate hikes is not yet over (US inflation is at its highest level for over 40 years at close to 10 pct, while the same is true for the eurozone) and the global economy is gradually shrinking back. The specific data from the labour market, such as the unemployment figures and wage rises, suggest that it could take a long time to bring inflation under control. Forecasts from investment banks, the International Monetary Fund as well as economic data are clearly pointing towards the hard truth that economies across the world are slowing down.

In such a situation, the bounce-back of the indexes in July is surely mainly due to the better mood following the Federal Reserve’s comparatively mild response, when it raised interest rates by less than had been expected. But the fact remains that the US economy has shrunk for two quarters in a row, while the German economy remains at a standstill. Only in southern Europe are we still seeing limited economic growth, while analysts are predicting further scaling back after the summer rebound, which could continue until early 2023 – regardless of whether we are talking about the US, the eurozone, or emerging markets, such as Poland and its WIG index.

The first summer month brought with it many ups and downs to the Polish stock market, but overall it remained in the black over the period. The WIG and the WIG 20 gained 4 pct and 3 pct respectively, while the WIG-Bud rose by over 6 pct. The construction index has also performed well since the beginning of the year – it has barely lost 3 pct, whereas the WIG has gone down by over 20 pct. The WIG Nieruchomości performed weaker at the end of June and beginning of July, which is certainly due to the weakening residential market – the impact of more expensive mortgages and the economic slowdown have been combining to curb home sales. According to figures from ‘Parkiet’, developers listed on the WSE sold 40 pct fewer homes than in the previous year, which can only partly be explained away by the record high sales seen in 2021. Sales have now fallen year-on-year for four quarters in a row. With an ever-restricted demand for mortgages (the number of contracts fell by 55 pct in June and by 52 pct in terms of value), developers are turning to buyers who pay in cash as well as the PRS sector, but both of these sources of demand have their limitations. Even though, according to, month-on-month sales have been growing in Poland’s largest cities, this has mainly been due to the many promotions and reductions offered by developers and doesn’t herald a long-term recovery. While sales targets for 2022 have been revised, developers are not planning to drop their prices or reduce their margins.

The construction sector is also having to contend with the economic slowdown – with infrastructure being no exception to this. Budimex calculates that the value of public tenders for infrastructural projects has shrunk over the last three years from PLN 35 bln to PLN 26 bln and is not convinced that this trend is over. Many public tenders have budgets that have been underestimated. Gas and energy projects are being cancelled as are many private sector investments. The construction giant believes that only the warehouse and logistics market stands any chance of maintaining its growth rate of the last few years. As a result, Budimex is planning, firstly, to enter foreign markets (including Slovakia, the Czech Republic and Germany), as well as to further develop its wind farm and electric vehicle charging networks. Wind power is also seen as an opportunity by Onde, which is one of the largest renewable energy contractors and is owned by Erbud. It wants to build wind turbines out of its own pocket in order to diversify the group’s revenues. The company has also not ruled out expansion through takeovers, particularly on the German market.