Goodbye bear, hello bull?
Market won't get worse in 2002, analysts say
Taking advantage of a recovering economy and investor optimism, the Warsaw Stock Exchange (WSE) this year should break out of the slump that dragged it to new long-term lows in 2001, analysts project, though a healthy upturn is unlikely before mid-year.
"I expect a breakthrough in the middle of the year and a further continuation of growth in the fourth quarter so that the WIG20 index should close the year at some 1,500-1,600 points," said Marcin Materna, an analyst at Dom Maklerski BIG-BG, making the most optimistic projection among anawlysts contacted by the Business Journal.
Hitting 1,600 would represent a 32.5% leap from last year's close and a marked turnaround from the 33% loss posted by the exchange's blue chip index in 2001. The market bottomed out last year as 2000's IT bubble burst, economies around the world downshifted, the local economy hit the skids and domestic political factors added to investor uncertainty. The market reached its nadir in the wake of Sept. 11 terrorist attacks in the United States.
But macroeconomic indices, poor in the first quarter, will begin to improve later in the year and investors will start buying shares in anticipation of an economic rebound, Materna explained.
The WSE started the year on a good note, with the WIG20 rising 6.8% to 1,285.15 last week. The all-share WIG index climbed 6.3% to 14,628 and the TechWIG edged up 4.7% to 630.87 for the week ending Thursday.
The bourse was dormant early in the week due to the holidays but investors started buying heavily on Thursday, when the WIG20 rocketed by 5.57%.
"We saw the so-called January effect," said Dariusz Górski, an analyst with ING Securities. "Nobody believed that it would come but it did.
"The January effect emerges as investors traditionally close positions in December, then set up a strategy for the next year and begin to buy in January," he explained.
Investors also anticipated an interest rate cut by the central bank later this month and pension funds - the largest institutional investors on the market - began to buy stocks and balance their portfolios, Górski said.
But analysts cautioned against reading too much into the early swing.
"I don't think it's the beginning of a major upward movement, but we should see some more increases in the short term," said Rafał Wiatr, head of research at Dom Maklerski Banku Handlowego.
Górski agreed. "After some rises in the first quarter, a slump will follow and the real rebound will come later," he said. Górski projected that the WIG 20 will reach 1,380-1,400 points at year's end.
"There will be some 15% growth, as investors will anticipate an economic revival and the pension funds will have more and more money to invest," Górski said. The small free float on the Warsaw bourse will force the pension funds to funnel their cash into the biggest and most liquid stocks, which will drive prices up, he said, projecting the WSE's liquidity problems will continue over 2002.
"There are ever-fewer companies on the exchange, some more will leave and there will be very few new ones," Górski said.
Wiatr expects growth on the exchange in the New Year but his forecasts are less optimistic than Materna's and Górski's.
"The limit of 1,500 is not surpassable, the WIG20 will rather come up to some 1,350 points," Wiatr said.
The macroeconomic environment will not allow for a bigger increase as Poland's gross domestic product (GDP) continues 2001's poor performance, unemployment grows and inflation rises, he said.
Materna said that the current forecasts are based on very cautious assumptions and even a slight upward correction can spur an upsurge of investors' confidence. Many stocks are now undervalued and the central bank's nominal interest rates are already at the lowest level in years, which will shift investors' interest toward equity, he said.
"If investors (realize they) have realistic prospects to earn 20%, they will prefer shares, which will bring them a return twice as big as on bank deposits or safe securities," Materna said.
While cautious about technology stocks, Materna pointed to pharmaceutical companies as good buys for this year. "Pharmaceutical stocks should perform well thanks to good results and due to speculations over possible takeovers by strategic investors," he said.
Although both drug makers and distributors performed much better than the entire exchange last year, Materna said their growth potential has not yet been exhausted.
"Prices of drug companies are still not satisfactory to the main shareholders," he said. Also, due to Poland's demographic patterns the drug industry has strong growth potential in the long term, he noted.
Robert Wylot
