Building site blues

At the end of March things cooled down a little on the global stock exchanges. The possible costs of the Japanese tsunami had been calmly analysed and calculated, while investors' minds remained focused on the need to spend the cheap money being pumped into the markets thanks to low interest rates

The WIG20 reached a level at the end of March not seen on the Warsaw Stock  Exchange since June 2008. Even the final resolution of the open pension funds issue failed to knock it off course. Foreign capital was flowing into Warsaw in torrents, with the WIG20's biggest and most liquid companies being the centre of attention. Over the period the stream of money helped to push the WIG and WIG20 up by 4.97 pct and 4.57 pct respectively. However, there remains no shortage of real threats on the horizon: on April 18th the news broke about the prospect of the lowering of the US's rating by Standard & Poor. The news resulted in sharp sell-offs on the global stock exchanges. Economists and investors are also anxious about high prices of oil, metals and food pushing up inflation, leading to an increase in interest rates and more expensive capital in the long term. We were given a brief taster of such a scenario in early April, when interest rates went up in the euro zone, China and Poland (for the second time this year).
After a weak Q1, when the WIG-BUD fell by 10 pct and was the worst index in the sector, the beginning of Q2 did not bring with it any clear improvement. As the WIG gained 5 pct within a month, the WIG-BUD lost over 1 pct. The index was certainly not helped by the performance of PBG, one of the "heaviest" companies in the WIG-BUD index, the value of which depreciated by 12 pct in just four weeks. The generally negative atmosphere surrounding construction companies on the stock exchange is partly to blame for this, as well as analysts' weak assessment of PBG's prospects. According to the calculations of daily newspaper `Parkiet´, out of 10 recommendations issued in the first quarter for this company, none were for the purchase of its shares and as many as four recommended disposing of PBG's securities completely. The dead weight of PBG dragging down the WIG-BUD index was somewhat counter-balanced by the performance of Budimex - the only star among the companies (and not only construction companies) on the WSE. This was, among other factors, the result of its decision to pay out all of last year's profits in dividends, as well as due to its ambitious plans for this year. Its revenue is set to grow at a double-digit pace and it is likely to generate profits close to last year's. The reason for the weaker profitability of the group is the decline in sales in the development segment. However, the company, which is headed by Dariusz Blocher, continues to garner new contracts, including one to build a section of the S17 road and another to restore the fortifications of the old town in Zamość. Budimex is also considering entering the market of refuse utilisation. The uncertain future for public investment is forcing construction companies to diversify their activities, since the prices of steel, concrete and fuel constitute a serious hazard from the operational side as they could erode already low margins. Shares in P.R.I. Pol-Aqua, a company that has also never been an investors' favourite, bounced on the news of the sale of its loss-making subsidiary Vectra. The firm is also competing for the modernisation projects for the Łódź-Fabryczna railway station and the Olsztyn-Szymany railway line.
Developers were in a rather happier situation than construction companies - their index grew by a decent, 3 pct. Double-digit growth figures were registered by companies in the shopping centre sector, such as Plaza Centers and Rank Progress, the latter of which might revise its forecasts for this year after the signing of three more preliminary deals for the sale of retail facilities. Shares in Echo Investment were up by nearly 5 pct. The share prices of developers specialising in residential projects were relatively stable, even though something of a revival is occurring on this market.  According to specialists, the sale of homes on the primary market could grow by as much as 10-15 pct in 2011. (Mir)

Short-term Hungarian bounce
The Prague PX index registered a slight monthly growth of around 1 pct, while the Hungarian BUX gained as much as 5 pct. The BUX was fuelled by an influx of cheap capital from developed countries. The announcement from the government to increase taxes on pharmaceutical companies - which constitute a large part of the Hungarian stock exchange in terms of its  capitalisation - has had a significant effect on the behaviour of investors. Meanwhile, OTB, the biggest Hungarian bank, has benefited from the news that the government is planning to introduce facilities for people repaying their mortgages in foreign currencies.