The slump with no end

Even after the recent publication of good data for the Polish economy, the indexes of the Warsaw Stock Exchange continued to slide and the WIG-Construction index slumped to its lowest ever level. The last ten days of August brought some calmness to the global markets, which was partly due to making up for some of the losses incurred during the dramatic price reductions in August. A lot of this mood was connected to the fact that we have not reached the expected turning point that would signal the return to growth. Analysts emphasise that it is now hard to judge when such a turning point might occur - as no-one has yet come up with a recipe for ending the debt crisis afflicting developed countries. Central banks cannot cut interest rates because they are already at record lows and governments cannot pump money any more money into the economy because they are already too saddled with debt. Therefore such measures as in 2008, which triggered a market boom during 2009-2010, are no longer an option. Paradoxically, the bankruptcy of Greece could signal the return to investing, and more and more facts seem to support such a scenario. But the new USD 450 bln plan announced by the US president aimed at increasing the number of jobs in the USA by a million has left investors non-plussed. Moreover, the reaction of the stock exchanges to Obama's speech to the US Congress was nothing short of panicky. Meanwhile the US and Japan have both suffered a lowering of their credit-worthiness ratings. Against this kind of background the situation in Poland appears almost idyllic. The end of August brought news of the record profits generated by Polish companies in H1 (with the net result being PLN 56.2 bln - 34 pct higher than a year earlier) and the higher than expected GDP growth in Q2 (4.3 pct). However, even though the Polish economy is doing rather well, economists are drawing our attention to the weaker and weaker data from Germany, which worryingly could be a sign that Poland's good times are drawing to a close. Investors could have been partly taking into account an expected slowdown in Poland in the wake of the EU and the US being plunged back into crisis. Despite the fact that the declines on the WSE were not as big as last time, it's hard not to notice the 6 pct fall on the WIG 20 and one of 5 pct on the WIG. Meanwhile, the results publishing period for H1 only confirmed that the crisis is not only affecting the banking industry. The downtrends on the construction and development sub-indexes (14 pct and 17 pct respectively) should indicate that both these sectors are in a terrible state. However, this is not exactly the case - although a lot of firms have published weaker results (such as Erbud yet again, as well as Mostostal Płock, Mostostal Zabrze and Energomontaż Południe); on the other hand, the biggest companies (having the greatest influence on the construction sub-index) did not fare so badly. Experts agree that Budimex enjoyed excellent results (a profit of 73 mln in Q2), Polimex Mostostal Siedlce also pleasantly surprised analysts by generating a net profit of PLN 13.3 mln (even though its results were not evaluated as being as good as those of Budimex). PBG also did not disappoint us, publishing better than expected results - a net profit of PLN 73.5 mln. Even though a lot of analysts believe that PBG is in for better times, it is hard not to notice the huge - even in the context of the general slump WIG-Construction - slide in its price over the last few months. In just six months the share price of the company has depreciated by 60 pct. There were no surprises though when it came to developers - according to analysts the only unpleasant one was GTC's results, which despite an improvement in terms of revenues, its Achilles' heel has turned out to be low valuations of the company's properties. GTC also revealed that its investment will be significantly limited in the markets where it is present, where it will complete two instead of nine projects in 2012.
Despite the bearish mood, state-owned Polski Holding Nieruchomości, which was set up out of such firms such as Intraco and Budexpo, could enter the WSE this year. It has not yet been made public how the eventual flotation will be structured, but the Treasury is not ruling out selling all 100 pct of the shares held. The assets of the group include app. 180 properties, including undeveloped plots with a combined area of over 1,300 ha. (Mir)

Prague and Budapest in the red
The colour red dominated the trading floors in Prague and Budapest. Even though the losses were of the one-digit variety, Budapest's BUX was weaker than the Polish and Czech indexes, losing over 8 pct. Hungarian bank OTP was particularly badly affected due to government plans for one-off repayments of credit in foreign currencies at a fixed exchange rate lower than the market one. In addition Hungary's annual GDP grew by 1.5 pct in Q2, much lower than in Q1 (2.5 pct). In Prague, as with many other markets, the losses of the last few weeks were put down to fears over the future of the banking sector due to the debt crisis: shares in Komerční banka, Erste and others all lost ground in the Czech capital.