Macroeconomic concerns, not Y2K, expected to affect WSE
Any heavy Y2K selling of stocks has already happened, which means that the stock market is likely to stay fairly quiet for the rest of the year as foreign investors wait for the holidays to pass, analysts said last week.
Analysts also said that any discounts Y2K worries would bring have already been accounted for in companies' stock prices, which may present a buying opportunity for speculative investors.
"These (Y2K) worries are off (their) peak and should ease a little now," said Krzysztof Rybinski, chief economist at ING Barings.
Some investors are concerned how operations at companies such as Telekomunikacja Polska (TPSA), computer firms and banks will be affected by the millennium bug. That concern had been expected to cause a certain degree of selling on the Warsaw Stock Exchange (WSE).
Y2K isn't the only reason for the low level of activity from foreign investors, analysts said. Many portfolio managers have also sold holdings to be able to lock in profit before the end of the year. In the next month, macroeconomic concerns are likely to have the most impact on the market, and those concerns will determine to what degree investors pile back into the WSE in January, analysts said.
Pawel Zach, an analyst with Citibank (Poland), said that in most years, investors often begin returning to the market in mid-December, having closed out on profit earlier. This year, however, he said worries such as Y2K made it unlikely for investors to return before January.
The stocks most exposed to Y2K are high-tech, telecom firms, banks and energy operators. On the WSE, most of those industries comprise much of the blue-chip stocks. Some companies, such as TPSA and Bank Pekao, have publicly stated that they have updated their systems to deal with the bug.
Some stocks have been subject to greater fluctuation than usual. For example, software company and systems integrator Optimus has seen its price fall 4.8% from Oct. 1, to close at zl. 45.6 per share on Friday. And even the banks have not been immune, with Bank Przemyslowo-Handlowy (BPH) falling 10.5% in the same time period, closing at zl. 179.
Polish investors have been far less skeptical of the potential Y2K fallout than their foreign counterparts. "Domestic investors generally ignore the (Y2K) risk," Zach said.
The domestic investors are capable of exerting a greater influence on overall stock prices, as the absence of activity by foreign investors has created a fairly shallow market.
Zach said that he expected the market to remain flat for the remainder of the year, fluctuating between its current level of 14,492 and around 15,500. Any major price changes are likely to occur in the New Year, as foreign investors re-enter the market, he said.
Others said that the market was only likely to move dramatically in the event of negative news on world markets or more bad macroeconomic news from Poland. "If there is a panic it'll be an international one, and then investors will sell everything," said Zbigniew Lapinski, an analyst at Deutsche Bank. "I don't see Poland so much as a place where the index will drop 20%."
Lapinski said that of greater investor concern than Y2K is the current wrangle within the government over passing new proposed tax laws, which if not passed could well lead to the resignation of Deputy Prime Minister and Finance Minister Leszek Balcerowicz. That would seriously damage investor confidence in the country as Balcerowicz is seen as the protector of economic stability in Poland.
In light of this, Y2K issues account for about 15-20% of the equity market's risk at present, said Piotr Wozniak, an analyst at CDM Pekao Securities. Much of the remaining questions center on macroeconomic and political stability, potential trade union strikes and ongoing social reforms. "It's not the most important thing and in my opinion, if someone is saying 'don't invest in Poland' because of Y2K, then they're thinking of something else," he said. He added that any investors who wait until Jan. 1 to see what fallout the millennium bug causes will have missed any buying opportunities.
Analysts said that investors would be forced back into the market for one key initial public offering (IPO), though, that of oil giant Polski Koncern Naftowy (PKN). PKN has previously said that it was Y2K compliant, but analysts have said that the company was still exposed to significant third-party risk, such as an interruption in Russian fuel supplies. PKN is currently selling shares in a subscription period and is scheduled to debut on the WSE Nov. 26. The company is expected to become the second-largest stock on the WSE in terms of market capitalization.
PKN's weight on the market means that any fund managers looking for an overall exposure to Poland must pick up the stock. If fund managers ignore the stock, their portfolios will not accurately reflect the WIG index, said Michal Mierzwa, an analyst at Centrum Operacji Kapitalowych Banku Handlowego. "Maybe they are afraid of Y2K and the Polish economy, but they must (buy)," he said.
While PKN is priced at zl. 18-zl. 24 per share in the subscription period, the current weakening of the zloty makes the company particularly attractive, Zach said. He added that the PKN had the most upside potential of any stocks on the market, and could hike about 20% in the mid term.
