Gains wiped out by U.S. sell-off
Telekomunikacja Polska's (TPSA) strong fourth-quarter profit report coupled with optimistic inflation figures buoyed the Warsaw Stock Exchange (WSE) last week. But enthusiasm was wiped out late Friday when alarming macroeconomic indicators from the United States sparked a sell-off.
"There was a big reversal, a bloodbath on the big 20 futures," said Andrzej Tabor, head of research with Bank Handlowy. "It looks like they're going into a recession in the States and the Polish market took that at face value. The market started to drop right after the numbers in the States came out."
The U.S. Producer Price Index posted its biggest one-month gain in more than a decade in January, according to government figures, leading to speculation that the U.S. Federal Reserve, wary of inflation, will not make further interest rate cuts.
Until the announcement, the WSE had appeared to make a strong showing. TPSA, the largest company listed on the exchange, reported that unconsolidated net profit had surged to zl. 878 million ($200 million) in the fourth quarter of 2000, a 440% increase compared to the same period in 1999. The company also announced that unconsolidated net profit for the year doubled compared to 1999.
"It was the event of the day and event of the week," said Piotr Kazimierski, co-head of equity sales at SG Securities. The TPSA announcement was significantly better than expected, leading the company's share price up 1.17% to zl. 26 and helping a breakthrough in telecommunications and information technology stocks, analysts said. Improved sentiment on international markets also helped the WSE, with many investors taking a cue from the U.S.' Nasdaq index. The Nasdaq closed Thursday with its strongest finish since Feb. 8.
"The market was driven by what was happening on the Nasdaq and international markets," said Benita Mikolajewicz, an equities analyst with ING Barings Securities. "The second factor was the performance of particular stocks dependent on quarterly results, with the largest stocks ... most important."
By Thursday's close, the TechWIG index jumped 2.67% to 1,254.03 points for the week, while the market-wide WIG index held fairly steady, increasing 0.12% to 16,861.37, though by Friday's close those gains had been wiped out. Overall turnover was zl. 1.36 billion ($331 million), down from last week's zl. 1.74 billion ($424 million).
Speculation on interest rate cuts by the Monetary Policy Council (RPP), which meets Feb. 27-28, is also proving important to investment strategies. "If there is no cut, it might disappoint the market," Mikolajewicz said. Low inflation figures released by the Central Statistical Office (GUS) raised hopes that the RPP will act.
The potential nick in interest rates had been considered especially important for Poland's banking sector, which could take advantage of it to improve loan portfolios. A strong performance by banks had helped the market but Mikolajewicz said that most bank share prices have already increased significantly during the past few weeks. "I don't believe there is significant room for new growth," she said.
Net unconsolidated profit reports from the banking sector last week were mixed. Share prices reflected the preliminary profit announcements, with Powszechny Bank Kredytowy's (PBK) share price up 1.38% to zl. 110 per share, Bank Pekao up 2.46% to zl. 70.80 and Bank Handlowy plunging 7.03% to zl. 51.60.
One significant drag on the market was oil refiner and retailer Polski Koncern Naftowy Orlen (PKN Orlen), which reported a 58% drop in its fourth-quarter net profit. The share price of the heavily traded stock fell 5.5% to zl. 19.75.
