Semi-Annual Report of PKO BP (Poland)

     PKO BP is Poland's largest bank. 

    The net profit of the PKO BP group in the second quarter of 2018 increased to PLN 933 million from PLN 857 million a year earlier - the bank reported in a semi-annual report. The bank's profit was in line with market expectations.

    Net profit in the second quarter increased by 9 percent year-over-year and 23 percent qoq.

    In the first half of 2018, the net profit amounted to PLN 1690 million, ie it increased 22.3%. yoy. Net ROE is 9.5 percent.

    The bank's net interest income in the second quarter amounted to PLN 2291 million and was in line with analysts' expectations. The interest income increased by 8 percent yoy and 3 percent qoq.

    The total capital ratio of the PKO BP group is 17,4%, and Tier 1 capital ratio is 16.12%.

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PKO BP provides services to individual and business clients. The core business activity of PKO Bank Polski is retail banking.

Russia: Turning point for the currency

       The sanctions turned out to be meaningless?

    The Bank of Russia announced a decision to stop the intervention on the forex market until the end of September. This decision of the regulator has been a turning point for the market, after which the ruble began to strengthen steadily. In addition to reducing the demand for currency as such, the very fact of such a decision had a positive impact on the market, as it demonstrated the Bank of Russia's interest in stabilizing the exchange rate of the national currency.

    The price of Urals oil grew by 7.4% to $73.8 per barrel last week, and is near the maximum for the last four years. The discussion on sanctions is still a minor issue, since the main directions of sanctions are already known, but it will hardly be possible to adopt them in the form of a law until November. However, as the intermediate elections in the US Congress approach, the sanctions pressure on the ruble will increase, as there are no prerequisites for mitigating them.

    In the autumn, the ruble will be affected by the factor of payments for foreign currency-denominated debt. However, the payments by the end of the year will amount to a non-critical amount - $34 billion. Most companies have sufficient currency reserves for debt servicing. Problems with the repayment of debts will not impact the ruble rate, many commentators indicate. 

    As a result of Friday's trading, the dollar rate was fixed near the level of 67 rubles/$. 

FTSE Russell: list of Polish companies

     FTSE Russell published the final list of 37 Polish companies that will be included in the developed markets indexes, after the September reclassification of the Polish market to the developed status.

    Below is a list of companies according to the size category assigned by FTSE Russell.

(large cap): PKO Bank Polski
(mid cap): PKN Orlen, Grupa Lotos, PGE, PGNiG, KGHM Polska, Bank Pekao, PZU, BZ WBK, mBank, LPP, Dino Polska, CD Projekt, Cyfrowy Polsat.
(small cap): Bank Millennium, AmRest Holdings, Bank Handlowy. JSW, Alior Bank, CCC, Play Communications, Orange Polska, Grupa Azoty, Enea, Tauron Polska Energia, Kernel Holding, Kruk, Asseco Poland, Budimex, Eurocash, Ciech, Energa, PKP Cargo, Lubelski Węgiel Bogdanka, GPW, Boryszew, Neuca.

    
     Reclassification of the Polish market to the status developed by FTSE Russell will come into force on 24 September.

    Poland's share in the Russell All Cap Developed FTSE index will amount to approximately 0.154 percent.

Malaysia: Possible increase in deficit

     The Ministry of Finance of Malaysia wants to reduce GST to zero percent and re-introduce turnover tax to compensate for any revenue shortages. Rising oil prices - positive for net energy exporters, such as Malaysia - will also support revenues, officials said.

     But some analysts are not convinced.
     Combined with the fuel surcharges - promises made by the current administration - as well as high country foreign debt and low reserves, sales tax is not very comforting.
     We could look at Malaysia's fiscal deficit next year go as high as up to 4.3 percent of GDP, what would be a big increase from 2017  level at 3.0 percent.
     The degree of fiscal deterioration after the election is the main risk factor for foreign investment. And although it is still too early to draw any conclusions, it is in the hands of the government to take appropriate action for investors and rating agencies. 
    If GST was abolished "without adjustment measures", it would be negative for the country's credit, according to Moody's Investor Services.

Warsaw Stock Exchange: The upgrade

     As many as fourteen initiatives contain the revised strategy of the Warsaw Stock Exchange until 2022. A greater number of trading platforms and instruments is expected to attract both companies and investors. New platforms will enable, among others the obtaining of financing from venture capital funds or crowdfunding. At the beginning of 2019, another projects will be presented.

      New platforms will entail the entrance to the non-public market, i.e. the platform will be able to raise funding from the VC funds, in the crowdfunding formula, and the limited secondary trading of issued instruments will be possible.

     This platform is to be based on blockchain technology, a distributed database used so far mainly in transactions on cryptocurrencies. It is a very safe technology, but not very efficient and therefore useful in systems with lower frequency of trading.

    Private Market is mainly for start-ups, but it is complemented by something more important, namely GPW Ventures. This is a fund of funds that will invest in VC funds and in this way start-ups will indirectly gain a new investor by the venture fund.

    The WSE also wants to expand the system of securities lending, which is to stimulate short sales and increase demand. It plans to introduce business reporting standards that allow for automatic data processing and reduction of costs related to reporting by companies (WSE Data). In turn, the TCA (Transaction Cost Analysis) project will enable the creation of a set of innovative tools for the identification and analysis of transaction costs.

     Another area for the development of which strategy 2022 is to give an impulse is the derivatives market. There will be two new reference indicators for the bond and money market: Warsaw Repo Rate and Bondspot Benchmark. The WSE also wants to stimulate the repo market, i.e. returning securities in exchange for cash, which will not only strengthen the liquidity of the financial sector, but also set interest rates on the basis of market transactions.

    Another new platform, something we have never done before, is a waste trading platform. Many companies treat their waste as a cost, and for those who handle waste, it is a very valuable raw material and the idea is to combine one with the other in a standardized, homogeneous way to bring this industry to a new level of technological service.

     The diversity of sources of revenues is to bring the WSE closer to more developed exchanges, where trading in shares brings a significantly smaller share of revenues than in Warsaw. Especially since from September the Warsaw Stock Exchange will become a developed market according to the FTSE Russell classification as the first from the countries of Central and Eastern Europe. From now on, it will be compared to the largest markets in the world, not to the markets of the region.

 

Suffering of the emerging markets

Investors withdrew from the emerging markets $1.4 billion

 

International Finance Institute (IIF) announced that investors withdrew from the emerging markets $1.3 billion invested in assets and 100 million dollars located in government bonds.

 

The sale of assets and debt securities in emerging markets accelerated last week due to the sharp decline of the Turkish lira and fears related to the global trade war caused by the US imposing duties on export goods from many countries, including China.

 

The strong dollar exchange rate, rising costs of loans and energy also prompted investors to seek safer investments.

 

"Turbulence caused, among others, by increased tensions between the US and Turkey has obviously reduced investors' appetite for emerging economies," the IIF report said.

"Tensions in the market will be most severe for countries that have relatively high demand for external financing," warns IIF.

Most funds were withdrawn from South Africa - $600 million. - and China - $500 million. With a slight delay, i.e. at the beginning of the week, investors' money began to flow away from India as well. 

 

IIF chief economist Robin Brooks said that the value of the Turkish currency is currently lower than its macroeconomic fundamental valuation, and therefore the lira should strengthen in a year to two. He warned, however, that there was a risk of "plague" because capital flows away from other countries classified by investors as a category of emerging markets, such as Argentina, Egypt, Lebanon, Indonesia and South Africa. Poor assessment of the economic situation of several countries in this category often prompts investors to escape from all emerging markets.

 

National Bank of Poland: Growth perspectives

     A further increase in consumption and gradual take-over of the investment burden by private enterprises from state and local government investors are the dominant trends for the coming years. Despite a slight weakening of exports and real consumer incomes, there are no serious threats to the Polish economy on the horizon. In the next 30 months, the Polish economy is expected to grow faster than the economies of other EU countries.

 

     "The Polish economy works on several engines. Consumption is still the largest contributor to growth. We have an excellent situation on the labor market, rising salaries, good consumer sentiment ", says Jacek Kotłowski, deputy director of the NBP Economic Analysis Department. "But the second engine which are investments is also turned on. At the beginning, these are mainly public finance sector investments, financed from EU funds, but step by step more and more private company investments are launched. The third engine is export which is slightly weaker in the recent period due to the fact that the growth in the EU has slowed down."

     The Polish economy will develop at a rate of 4.6 percent - an increase of 0.4 percent compared to the previous estimate of March this year and a result identical to that from last year. The data for the first half of the year published by the Central Statistical Office shows that in the first six months of the year GDP increased by 5.0-5.2 percent. This means that this year, for the first time, the value of Polish GDP will exceed PLN 2 trillion.

     Although the next years will bring a slower growth, the result of 3.8 percent in 2019 and 3.5 percent in 2020 is impressive. The euro area countries will record over a half weaker growth.

     According to the National Bank of Poland, wage growth currently remaining at around 6 percent rate should accelerate to 7 percent; the slowly rising inflation will somewhat limit spending growth. This year, average prices should increase less than in the previous year, when the average annual inflation was 2 percent. In 2019 and 2020 it will be higher (2.7% and 2.9% respectively), but still within the acceptable range of fluctuations in the inflation target (2.5% +/- 1 percentage point).

     - We have been observing a slightly higher dynamics of commodity prices recently, which on the one hand results from a slightly weaker exchange rate, on the other hand, from a slowly growing inflation in the world. The price dynamics of services, which were usually a factor that pulled inflation, decreased slightly. The last few months saw the fall in prices in industries such as insurance, mobile telephony, radio and television subscription, and they have affected this slowdown - explains the representative of the Department of Economic Analysis of the National Bank of Poland. - In our opinion, these were rather temporary factors and in the coming months or quarters we expect a slow rise in inflation, but to a relatively low level.

     "We see threats outside the Polish economy. We do not know how fast the world economy will develop, we have some signs of a slowdown from the euro zone. We think that they are temporary to a large extent. The economy of the euro zone will slow down, still maintaining a high rate of growth, however it can not be ruled out that the slowdown in the pace of growth will be stronger. There are certain protectionist measures that, for now, have a more media character, but if they were to develop, they would be a risk factor.", says NBP Economic Analysis Department.