Investors ready to cash in on gains

by Robert Wylot

"While Polish institutions were the driving force of earlier gains, this time it was foreign investors" Fueled by foreign capital, the Warsaw Stock Exchange (WSE) continued its New Year rally last week but the market is becoming increasingly nervous and analysts warned that a correction is overdue.
The market's main indices were up, with the blue chip WIG20 climbing 1.4% to 1,451 points, the all-share WIG edging 1.4% higher to 16,165 and the TechWIG rising 1.6% to 705.24 for the week ending Thursday.
Banks performed particularly well, with the largest publicly traded financial institution, Bank Pekao, posting a one-day gain of 4.6% on Friday alone."While Polish institutions were the driving force of earlier gains, this time it was foreign investors," said Artur Zaręba, equity salesman at CA IB Securities. A Polish currency depreciation early in the week attracted foreign investors, he said. "Polish stocks became much cheaper for foreign investors, who pay for them with U.S. dollars," Zaręba said.
Foreign investors announced their presence Tuesday, when the market recorded its biggest gains - the WIG20 soared by 3.53% - following a U.S. holiday, according to Przemysław Nowicki, an analyst at Bankowy Dom Maklerski PKO BP. "Foreign institutions such as (Credit Suisse First Boston) CSFB and J.P. Morgan, were buying a lot," Nowicki said.But there should be no more significant influx of foreign capital this week, as the new cash was largely speculative, he said.
Analysts agreed that the gains may continue for several sessions but a correction or at least a stabilization should follow late in the week.
"We've seen major rises since the beginning of the year and the market is becoming nervous," said Dariusz Nawrot, head of research at Dom Maklerski PBK. "Prices are beginning to fluctuate strongly, even within individual day sessions."
Big price fluctuations are likely on the WSE this week, with the closely watched WIG20 surpassing the 1,500 point mark but finally closing the week slightly below that figure, Nawrot said.Nowicki agreed. "A stabilization should begin around the level of 1,500 and then some correction will follow," he said.
The two-day meeting of the Monetary Policy Council (RPP) on Tuesday and Wednesday may be a turning point on the WSE, analysts said.
"The RPP should lower interest rates by 150-200 basis points but investors have already discounted this reduction," Nawrot said.
Nowicki said a rate cut could lead to profit taking.
"There may be some speculative gains on Monday and Tuesday over expectations around the RPP's decision but then investors will begin to reap profits (and sell shares)," he said.
It was a good week for Pekao, the biggest banking stock and the second biggest company listed on the WSE.
The bank rose by 4% for the week ending Thursday, and reached zł. 110 during intraday trading Friday."Maria Wiśniewska, Pekao's president, upheld the bank's very good forecast for 2001 profit on Thursday, which is a rare case on the WSE nowadays," Zaręba said.
The stock rose on optimistic expectations that the bank will announce an equally positive forecast for 2002 in mid-February, along with official 2001 results, according to Nawrot. "Investors are counting on a continuation of good results in 2002," he said. International institutions also favored the bank with strong recommendations, he said. "Foreign investment banks have issued (a series of) ‘buy' recommendations for Pekao and some of them estimated the target price at as high as zł. 116," Nawrot said.
Analyst recommendations made just a few months ago suggested a target price at some zł. 80-zł. 90. Pekao's good performance last year came as a result of changes introduced after a management consortium led by the Milan-based UniCredito Italiano bought a majority stake in the bank in 1999, according to Zarźba. "The takeover by the Italians resulted in an improvement of management and in better results," he said. Pekao also announced the bank will pay a sizeable dividend, which further attracted investors. "A stock price over zł. 100 is exaggerated but the stock will still continue to rise until the dividend payout day," Nowicki said. A correction will follow, he said. Pekao's high liquidity helped drive the stock, analysts said. "When foreign capital flows onto the exchange it's the most liquid stocks, like Pekao, that foreign firms buy in the first place," Nowicki added.