Fears of slowdown sink tech stocks
IT companies bottomed out while other sectors fell slightly or remained flat last week, leaving investors skeptical that any improvement was on the horizon.
"The market was dismal," said Andrzej Tabor, director of Bank Handlowy's research department. "That is the only word that comes to mind. It was very weak."
Even with the successful recent debut of Interia, the first Internet portal to conduct an initial public offering in Poland, the IT sector was especially hard hit in the week's trading. The IT and telecommunications TechWIG index fell 9.3% to 1,221.38 points and is down 16.16% on the year. The market-wide WIG fell 4.83% to 16,840.66 points in moderate trading. Market turnover was zl. 1.7 billion ($425 million), up more than 16% from the previous week's lackluster trading.
Grzegorz Latala, head of research at Raiffeissen Capital & Investment Polska, said that uncertainty regarding gross domestic product growth and mixed fourth-quarter earnings reports from companies listed on the Warsaw Stock Exchange (WSE) nudged stocks down.
"It looks like the market is afraid the economy might slow down as much as 2% in the first half of 2001," he said. "That would mean much lower earnings growth than initially projected."
While poor, the IT sector results were not terribly surprising to analysts. Many investors took a cue from falls abroad as well as profit warnings from domestic and foreign IT companies. The tech-heavy U.S. Nasdaq index closed last Thursday at its lowest point since Jan. 10, though it has still gained 3.7% for the year. IT stalwart Prokom was indicative of the WSE's tech sector, getting pummeled in relatively heavy trading and falling 14.74% to zl. 133 per share over a five-day stretch.
"At first glance the results for the fourth quarter were good, but at the operational level the company showed a loss," Latala said, explaining a drop-off in Prokom's stock.
A reevaluation of the markets by Poland's institutional investors and uncertainty toward the next move of international players also hurt companies such as Prokom and Krakow-based IT firm ComArch, which stumbled 13.71% to zl. 56 per share, Tabor said.
"Most importantly I would look at the very weak demand for Polish equities," Tabor said. Poland's institutional investors, mainly pension funds, are staying away from the market, he said. Foreigners made some gains on the WSE through December but have since cashed in, taking advantage of a strong zloty and a favorable exchange rate. Meanwhile, high interest rates and apparently in-check inflation are leading many to the bond market, which is proving attractive to foreign investors.
One potential upside for the WSE is bargain-basement pricing, a result of the market's poor performance.
"Some of the stock is really cheap," Latala said. "This is why I don't see any further way down for the market. Is it going to stay at that level for another year? That is the question." A continuing poor performance could leave bargain hunters holding stocks for quite a while before they appreciate, he cautioned.
Still, analysts contend that the market cannot fall much further. "I don't think the IT stocks will fall as they did this week," Tabor said. "This week was a correction ... next week we will see a consolidation phase."
Smart shoppers may look to Poland's banking sector in the hope that lower interest rates will come from the Monetary Policy Council (RPP), loosening loan portfolios. Pension funds could especially drive the market, though there is hope that international investors will also help push the WSE to higher levels.
