ECB interest rate cut boon to WSE

Interest rate cuts in Europe spurred the Warsaw Stock Exchange (WSE) last week as investors look for an economic recovery in Poland and abroad, according to analysts.

The European Central Bank (ECB) and the Bank of England cut rates by 50 basis points Nov. 8, buoying European stocks and helping the WSE's blue chip WIG20 index jump by 2.9% for the day. Earlier in the week the U.S. Federal Reserve Board also slashed rates, though the Polish market did not react.

Eyes are now on the Monetary Policy Council (RPP) to make another move when it meets during the last week of November. The RPP has nicked interest rates five times this year and brought the 28-day intervention rate to 13%, its lowest level since August 1999.

"I think rate cuts will start to work probably even in this quarter," said Tomasz Bardziłowski, Poland country analyst for Credit Suisse First Boston. "There is a chance for a bottoming out in consumer demand in this quarter ... and recovery in the third quarter of next year."

As investors evaluated hopes for an economic rebound, the WIG20 gained 1.8% to 1,246.08, the all-share WIG was up 1.3% to 13,822.67 and the TechWIG nudged 0.8% higher to 690.20 for the week ending Thursday. Volume was zł. 904 million ($220.5 million) for the five days ending Thursday, down from the previous week when a holiday limited trading.

The WSE has grown significantly since bottoming out in early October, and the WIG20 has stayed above the 1,200 mark since Oct. 24. Barring surprises, analysts expect the WSE to stay above that support line.

"I think we will see another calm November and trading will be more bullish in December," Bardziłowski said.

Despite some optimism, economic questions remain as Poland's economy appears less and less insulated from a world downturn. Reflecting the poor outlook, business indices tipped lower in October as Polish companies said they have low expectations for future demand, the Central Statistical Office (GUS) reported last week. Producers cut supplies because of lax domestic demand and slowing economies to the West - where Poland sends most of its exports.

Aside from macroeconomic data, corporate announcements continue to fuel some stock action. Poland's biggest insurer Powszechny Zakład Ubezpieczeń (PZU) gave a boost to the market's IT sector when it announced a tender for a new IT system for PZU general insurance. Company spokesman Adam Taukert said the contract is open to Polish and foreign firms and a short list of bidders is expected within two weeks. He would not specify a financial figure for the contract but local press estimated a zł.1 billion ($244 million) deal.

Puls Biznesu reported that, for technical reasons, local firms would likely be limited to a supporting role. The daily linked IT firms Prokom, Softbank and ComputerLand with the project. Prokom's stock rose 1.6% to zł. 106.50 per share, Softbank's rose 5.3% to zł. 27.60 and ComputerLand's 3.9% to zł. 106 for the week ending Thursday.

Softbank's jump came despite an announcement last week indicating that third quarter unconsolidated net profit fell 4.7% from the same period in 2000 to zł. 12.3 million ($3 million). ComputerLand's consolidated net profit was zł. 6.9 million ($1.68 million) in the third quarter of 2001, the firm announced last week.

One of the most beleaguered stocks this year, long distance telecom operator Netia, was hit by more bad news last week when the company announced a consolidated net loss of zł. 761 million ($185.6 million) in the third quarter of 2001 compared with a zł. 179.6 million ($43.8 million) deficit during the same period last year. In the year to date the company has posted a net loss of zł. 862.8 million ($ 210.4 million).

"As of today, no solution has been found in relation to our funding gap issue, although we continue to explore a number of possible alternatives," said Kjell-Ove Blom, Netia's acting CEO, in a statement.

The company is expected to look to its strategic partner, Sweden's Telia, for help but its future remains uncertain.

Netia's share price fell 6.9% to zł. 5.40 on the week. It has lost 93% of its value since the same time last year.

Jeff Sparshott