Upon the announcement that Poland and Ukraine were selected as the host nations for the UEFA Euro 2012 football championships, there was a surge on the WSE, particularly focused on construction, tourism-related, and media stocks. Among construction / infrastructure-related stocks, Budimex jumped 15.4%, Stalexport 23.9%, Mostostal Warszawa 12.8%. Hotelier Orbis
increased 3.7% (down from intraday high of +10%) and media company TVN 3.8%.
The economic benefits are expected to be substantial,
What must be built: Some 1000km of roads (€ 6.5bn), improve railway infrastructure, modernize and enlarge local airports (combined € 5.5bn), stadiums (€ 700m). Entire transport infrastructure should cost some € 19bn. Most of the infrastructure, including motorways and other transport infrastructure would be built anyway and the incremental amount of funds that Poland will be granted is not very substantial, considering that over EUR 67bn of EU funds have already been allocated for 2007-2013. The costs of 6 modern stadiums that should be built or modernized is estimated at € 700m. The games will take place in the following cities: Warsaw, Krakow, Gdansk, Wroclaw, Poznan and Chorzow, and local economies will extremely benefit. Perhaps the most important factor, in our opinion, is that Euro 2012 is expected to discipline the decision makers as UEFA and the whole Europe will be watching, reducing the probability of delays in investments, as a deadline has now been set very precisely.
Could Euro delay € adoption due to higher spendings and inability to reduce the deficit. Employment could increase
For Euro 2004 to Portugal came 600k turists that left some EUR 800m. It is estimated that to Poland come some 1m turists. This could be exgaggerated as only half of teams will play in Poland and the rest in the Ukraine. The main directbeneficiaries could include:
- construction companies and producers of construction materials (Stalexport, Mostostal Zabrze, Projprzem, Polimex, Budimex, Polnord, Ulma, —urawie Wie?owe, Kety
- turist infrastructure operators (Orbis, Sky Europe)
- property developets (GTC, Warimpex)
- media companies (TVN, Agora
– outdoor), it is not yet determined who gets the broadcasting rights, in our opinion it could be TVP, Polish national television, the biggest impact will be in 2012; according to one of Polish media houses ad market in Portugal in 2004 went up by 7.7% vs only 2.2% the year before; last year’s World Cup has not materially impacted German ad market
- retail companies, mainly food retailers (Alma, Eldorado)
- IT companies (safety systems)
Poland and Ukraine’s successful UEFA Euro 2012 bid was no doubt the most important news headline of the day on Wednesday. The stock market reacted frantically the information – the WIG index soared to fresh highs above 60 thousand points led by construction and hotel companies some of which recorded up to 30% mid day gains, before retreating to pre-decision levels as the enthusiasm slowly faded. The zloty’s reaction was far more subdued from the start. Despite the positive effect the decision might have on the overall economic sentiment in the coming years as well as the expected direct impact of euro
-related investments on growth in the run up to the tournament investors were, not surprisingly, far more cautious in their judgments. First of all, the tournament is still 5 years away from now, and that is certainly not the time frame most market players have in mind. Secondly, even though it’s a reasonable assumption, that the project may speed up the utilization of funding on infrastructural development (which would be positive both in terms of current pace of growth as well as the economy’s potential in the longer run), economic expansion is running at full speed and the tight labor market conditions (particularly in construction) are already becoming a concern. The increased demand for labor is likely to keep wage pressure (at least in certain sectors) elevated and could pose a major inflationary risk if it transpires to the rest of the economy, and along with the more expansive fiscal policy, could push interest rates further up in the foreseeable future. Accor
ding to rough estimates roughly EUR 20 bn worth of public spending will be needed to co-finance and finance the necessary investments over the 5 year period, which will be an additional burden on the central and local government budgets in the coming years. Even though we are far less concerned by this than by the other spending plans the government has for the coming years it must be said that the EMU deficit requirements have note yet been met even once (despite the surprisingly strong performance from the real economy). Moreover inflation is already close to breaking above the Maastricht criterion which could mean that Poland may have just made a trade-off between the football euro
2012 and … adopting the euro
On balance we would treat the news as mildly positive for the zloty in the longer run (due to the better growth perspectives and marketing effect), but we also believe that financial markets will be aware of the underlying risks to inflation and fiscal performance and will not jump to far-fetched conclusions just yet.