Market dips on poor C/A figures
The market fell last week following March's poor current account data, the euro's further weakening and the expectation of interest rate hikes in the United States and Western Europe, analysts said.
The all-share WIG index closed Friday on 19,357.8 points, slipping 1.4% on the previous week's close. Volume dropped 36% in two days of trading to zl. 336.57 million ($80.14 million).
"The very bad macroeconomic news was the main thing," said Michal Mierzwa, an analyst at CA IB Securities. While market watchers anticipated negative current account data, the $1.43 billion deficit for March, up 50% on the previous month, was much worse than expected. (See related story, page 4)
And while trading in equities remained relatively stagnant as both foreign and domestic investors stayed on the sidelines, the zloty's dramatic plummet captured most of the attention. The currency fell 4.3% against the dollar last week, closing Friday at 4.63. "The disappointing current account data was the spark that led to the zloty falling in the last two days," said Pierre Bergeron, head of economic research at Citibank (Poland).
Moreover, the euro's fall to around 0.9 against the dollar, down 5.3% from March's average, contributed further to the zloty's weakening. "Obviously the euro is dragging the zloty down," Bergeron said.
Despite the gloomy macroeconomic scenario, Mierzwa said he expected that investors will return to the Warsaw Stock Exchange (WSE) on the back of strong blue chip first-quarter earnings published this week. Among those expected to post strong results are banks, due to current high interest rates, and Telekomunikacja Polska (TPSA), which anticipates a zl. 500 million ($119 million) net profit. On Friday, Bank Handlowy announced that its net profit rose 43% on last year's first quarter to zl. 152.4 million ($36.29 million). Other firms predicted to show good results are Elektrim, KGHM Polska Miedz and Polski Koncern Naftowy.
In a week of little activity on the WSE, the construction sector saw the most action, with Bank Handlowy purchasing the complete issue of seven million new shares in builder Mostostal Zabrze for around zl. 90 million ($21.43 million). The shares amount to a 34% stake in the builder, with 20% of votes.
Pawel Puchalski, an analyst at Raiffeisen Capital & Investment Polska, said that Handlowy's move was very smart, considering an imminent change Zabrze's management will make to equalize the structure of votes to the number of shares. "It means that Bank Handlowy, without paying a single zloty, will soon have 34% of voting rights instead of 20%," Puchalski said.
Nonetheless, he said he did not expect Handlowy to keep its holdings in Mostostal Zabrze for long, and that the investment will be a portfolio one. He said the bank has a history of making purchases in lucrative companies and selling them off quickly. "There is probably a foreign strategic investor" in the wings, Puchalski said.
Moreover, Handlowy bought its shares at a relatively low price - at zl. 12.75 per share - compared to what a foreign investor might be expected to pay, Puchalski said. "(Zabrze) could have got more money selling straight to a strategic investor; why they didn't do this I have no idea," he said.
However, after its rival Budimex decided not to buy the firm last year, Zabrze is anxious to keep its position as one of the country's top four construction firms - the other two being Exbud and Mostostal Warszawa - by acquiring other builders. "For sure, they're in a hurry now" and Zabrze has letters of intent signed with 3-4 smaller firms, Puchalski said. Zabrze fell 2.78% last week, closing at zl. 12.25.
