Looking up despite everything

The troubled eurozone has now been joined by China, where an economic slowdown is very likely, while in the USA in May the unemployment rate went up, suggesting that the biggest economy in the world, which has been relatively resistant to the turmoil in Europe, could also have problems maintaining its relatively rapid growth rate. Of course, the situation in the indebted countries of the eurozone remains the main factor determining the behaviour of the financial markets; however, the centre of gravity has moved towards Spain. The country is following the 'Greek' path, with a sequence of credit rating reductions, fears over the local banking sector and discussion about the public aid granted to Spanish banks. The situation is serious because the scale of the aid for Spanish financial institutions could exceed EUR 100 bln. Paradoxically, the news in the first half of June of the expected aid for Spanish banks to be received from other countries was greeted with euphoria on the global stock exchanges.

On the other side of the Mediterranean, the financial markets were trying to digest the scenario of Greece exiting the eurozone. The situation was improved a little by the results of the re-run general elections, preventing the left-wing Syriza party from coming to power, whose programme, centred on easing austerity measures, would have inevitably resulted in the exit of the Greeks from the eurozone.

Increasingly clear signals of a slowdown in Poland contributed to these circumstances according to economists Q3 could be the weakest period in the last three years. Growth in GDP is expected to slow down to app. 3 pct for the whole year, compared to over 4 pct in 2011.

Given the not-so-good news, the relatively strong upward movement of the main indexes of the WSE is a little surprising the WIG grew by 6.7 pct and the WIG20 by 7.7 pct. The growth in the blue chip index is an effect of the weakening złoty, thanks to which the relatively cheap shares of Warsaw-listed companies are even more attractive for foreign investors. The performance of WIG-Deweloperzy seemed weak, as it increased by only 1.6 pct, while WIG-Budownictwo saw calamitous price decreases of almost 8 pct to levels unseen for over eight years. Of course, the reason for this is the health of PBG, one of the three biggest WSE-listed companies, which filed for bankruptcy at the beginning of June, along with two of its subsidiaries: Hydrobudowa and Aprivia. According to the Polish Press Agency (PAP), the total value of the company's liabilities amounts to nearly PLN 1.5 bln. This triggered an avalanche, as over the next few days banks terminated loan agreements, while institutional investors called for the redemption of bonds and a further eight subsidiaries filed for bankruptcy. Unsurprisingly, PBG's share price plummeted by 70 pct within a month and the share price of its subsidiaries Hydrobudowa and Energomontaż-Południe by over 50 pct. Even the president of the Polish National Bank, Marek Belka, spoke out on the issue of PBG's bankruptcy. Little wonder that the construction industry, which is experiencing such hard times, is now being gone over with a fine-toothed comb by investors as rumours started circulating about PBG being just the first domino to fall. According to the grapevine, Polimex was also supposed to be suffering from liquidity problems, but this has been categorically denied by the company, while stock exchange analysts in the press have expressed a clear conviction that Polimex is in a much better way than PBG.

The PBG situation has weakened investors already shaky confidence in the construction sector on the WSE. Therefore it is worth emphasising that a few companies finished the discussed period positively, such as Budimex, Instal Kraków, PA Nova and Mostostal Warszawa. The latter company also has a new president ? Marek Józefiak, the former president of Telekomunikacja Polska, who now faces the difficult task of turning around one of the biggest construction companies listed on Warsaw's trading floor (with revenues of PLN 3.4 bln in 2011, but a loss of PLN 128 mln). (Mir)

a burst of optimism
The Warsaw Stock Exchange is currently the source of most of the optimism felt by investors in the region. While the WIG20 went up by nearly 8 pct, the PX index in Prague went up by 3.5 pct and Budapest's BUX by 4.5 pct. The issue of aid from the International Monetary Fund seems now to be heading towards a happy ending in Hungary. There are many indications that the loan negotiations will resume in the summer, so that funds could possibly be made available in the autumn. Investor sentiment in Prague was good, partly due to the record low levels of interest favouring companies shares at the cost of e.g. bank deposits. The stock exchanges in Central Europe were also boosted after announcements of aid for Spanish banks.