Exchanges fall into the abyss

Evidence seems to be mounting that the dark forecasts of two years ago about a possible second global economic crisis are closer to being fulfilled than ever before

The mood from the time of the Lehman Brothers bankruptcy in autumn 2008 has returned to the global financial markets. Reminding ourselves of 2009, when the governments of the western countries rescued their economies by pumping funds for all kinds of stimulus programmes into them, some forecasts were made that the crisis would have a second bottom, taking on a W-shape instead of the expected V-shape.
After the crash on the financial markets and the severe downturn of the real economies of developed markets, the mounting debts of the countries were always likely to become an issue. The summer of 2011 showed how painfully true the forecasts turned out to be. The growing threat of contagion from the Greek public finance problem spreading across southern Europe has effectively put an end to any prospect of a prolonged upturn on the global markets since winter 2009. But nobody expected a replay of the situation in September and October 2008 to occur. However, the characteristic feature of stock exchange crashes is that they tend to happen at the least expected moment. On the other hand, the economic situations in China (the decline in HSBC's China Purchasing Managers' Index to below the 50 point-mark, which signifies the end of the development boom phase), the USA (where consumption, the main driver of the economy, grew at the pace of 0.1 pct in Q2, which was the slowest rate since the recession of 2009), and finally the Eurozone (where the German economy has experienced a sudden downturn), suggested that the world is entering the second phase of the crisis. The beginning of August, when panic set in on the markets and the weekly falls on the major trading floors reached double digit figures, turned out to be crucial. Contributing to this was, among other factors, the news about the removal of the US' 'AAA' rating by
Standard & Poor's - a move that would have belonged to the realms of fantasy only a year ago. Budget tensions in the US were resolved by an agreement between the Republicans and the Democrats; however, the jitters on the financial markets have continued. On top of this came a series of depressing economic reports, which helped to deepen the declines and offset any improvement in the mood of investors that might have followed the relatively good Q2 results of companies. The feeling between the end of July and the first half of August is quite frightening - there has not been such a pessimistic mood for nearly three years. The WIG 20 lost 15 pct within a month, while the broader WIG index fared little better - slumping by 14 pct. The sub-indexes also had a miserable time: WIGBUD, which we predicted would be looking to finally hit bottom, nose-dived by 25 pct; and the investor mistrust of developers intensified, as their index plummeted by 27 pct. Analysts are clearly divided about how to respond to this, with some of them suggesting buying shares in both types of companies, while others are advising us to wait a little longer, at least until the end of the global turmoil. Meanwhile, companies are tending more and more to rescue their share prices by resorting to buy-backs. In the last few weeks such action was taken by a number of companies in the construction and development sector, including Gant, which wants to allocate as much as PLN 20 mln for this purpose. Marvipol was another to buy its shares back, as was PA Nova. Meanwhile, in the background of the awful gloom on the global markets and collapsing indexes, companies have been publishing their results. Erbud, even before the publication of its figures, has announced that the construction of the Silesia CIty Centre project in Katowice would negatively affect its results for Q2, which are to be lower than expected (the company registered a loss of PLN 14 mln in Q1). At the same time the company boasted about its order portfolio being worth PLN 1.3 bln and has entered tenders for projects worth a combined PLN 5 bln. Ronson has already published its results, which were disappointing: in H1 the developer registered a net loss of PLN 0.8 mln compared to a net profit of PLN 2.6 mln a year earlier. In Q2 alone, which was the worst quarter in the history of the company, the loss amounted to PLN 3.6 mln compared to a profit of PLN 1.3 mln a year earlier. (Mir)