Global Markets Overview: Eastern Europe
By Julia Solecka, Analyst at TheYork IFS Global Market Telegraph
Several European countries increase restrictions amid rising Covid-19 cases while Amazon enters the Polish e-commerce market and JD Sports continues its strategic expansion into Europe and America.
Pan-European Stoxx 600 climbed 2.65% from the beginning of March with European stocks most recently outperforming after the Federal Reserve raised its growth forecasts. Following a sell off in US Treasury Bonds and the tech sector, the bank subsector rallied to add most of the growth. While inflation continues to be a concern, bond yields remain at the forefront, hitting 1.75% and a 14-month high. This comes as Europe finds itself in the midst of rising coronavirus cases for the 3rdtime, with several countries considering further restrictions. Poland, parts of France and Ukraine’s capital Kyiv have entered partial lockdowns following a slow EU vaccine rollout and rising case numbers, and more talk of a third wave is likely to reflect in upcoming stock performance.
Poland’s e-commerce market, valued at almost €22bn in 2020, currently represents only around 3% of the overall European market (€717bn in 2020). Market share is largely
occupied by Polish sites, with Allegro.pl taking the top spot for both website traffic and market share (33%), followed by OLX.pl, Ceneo.pl and China’s Ali Express. Allegro, a multi-auction website, is the 13th most popular e-commerce platform in the world, and had stepped into the spotlight in 2020 with Poland’s largest ever IPO, increasing the company’s valuation to $19bn from $11.7bn following a 60% rally on debut. With Poland’s Sunday trading ban (introduced in 2018) and the pandemic accelerating the move to online shopping, about 11,000 new ecommerce websites and online stores were opened in the country as an influx of competition set their sites on Europe’s fastest growing ecommerce market (42%). One of the upcoming rivals is Amazon, currently holding a 1.3% market share, which launched its Polish website earlier this month. While Amazon brings the offering of access to global fulfilment and international shoppers, Allegro’s low fees and loyalty programmes will be difficult to overcome without large amounts of investment.
JD Sports has made the first step to entering central and eastern European markets through a 60% stake in Poland’s Marketing Investment Group (MIG). The step into growth markets was made possible by a raising £464 million by equity issue in February, though financial details of the agreement weren’t published. The British retailer also has its eyes set on expansion in the US, after a $495 million deal acquiring DLTR Villa was completed mid-March. With MIG opening doors to 410 retail stores across 9 European countries, and DLTR Villa operating 247 stores in America, analysts forecast a median estimate of 15.4% upside for JD in the coming 12 months.
Ukraine is on track to nationalise Motor Sich in a bid to prevent a Chinese takeover attempt by Skyrizon, a majority shareholder. The Aerospace company has had its assets and shares frozen by a Ukrainian court after Skyrizon attempted to buy a controlling stake, on which sanctions have been imposed. This followed comments made by the US State Department earlier this year claiming that the “predatory investments and technology acquisitions… represent an unacceptable risk of diversion to military end use in [People’s Republic of China]”. This mirrors a similar trajectory to 2017, where a Ukrainian court froze Motor Sich shares following an unsuccessful acquisition attempt by Skyrizon, though more recently the company has threatened Ukraine with a multi-billion-dollar lawsuit.
This article was first published in the University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 4 in late March 2021.
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