Market reflects mixed macro signals

The Warsaw Stock Exchange (WSE) had a rollercoaster of a ride last week as the market reported early gains before falling on poor macroeconomic signals midweek and rebounding Thursday on hopes of a rate cut.

"The market is weighing where to go from here," said Dariusz Górski, an analyst at ING Bank in Warsaw. "This is an uncertain period after more poor budget figures, but before possible rate cuts (this week)."

The blue chip WIG20 index fell 3.8% to 1,280.6, the all-share WIG was down 1.9% to 14,281.6 and the TechWIG fell 6.2% to 681.4. Volume was down at zł. 1.19 billion ($290 million).

The government's revised gross domestic product (GDP) forecast of less than 2% next year, included in its amended budget 2002 bill, was significantly lower than previously estimated. Lower GDP growth will mean lower budget revenues, increasing the likelihood that the government may have to widen the financial gap beyond the planned zł. 40 billion ($9.7 billion) limit.

"Everyone knew the government would most likely have to find more money to meet next year's budget plan, and that was largely factored in, but this news did not give any stimulus to a market that was drifting," Górski said. "Other poor macroeconomic data and the collapse of Elektrim's stock midweek took it on a downward path."

Relatively poor October industrial-output figures and a fall in seasonally adjusted manufacturing prices also subdued demand in the middle of the week. Shares were further hit by weak performances on the New York Stock Exchange (NYSE) and the Nasdaq and investors' generally wary attitude toward emerging markets following recent problems in Argentina, analysts said. In addition, the government's decision to raise value-added tax (VAT) on building materials and services stands to worsen market conditions in a sector whose output fell 10% in the first three quarters of this year, they said. Adding to the gloom was a Labor Ministry statement Thursday that Poland's pension funds would not see their expected Social Insurance Administration (ZUS) contributions paid before the end of the year.

On the upside, analysts said investment and pension funds' involvement in equities was still under limit and could provide an engine for growth in the coming weeks. They also pointed to a likely rally in December on the back of an expected one percentage point interest-rate cut when the Monetary Policy Council (RPP) meets this week, and seasonal spending.

The fortunes of the WSE tracked those of telecom and power conglomerate Elektrim. Early in the week, analysts painted a very bleak picture for the company, with some suggesting it may even be on the verge of bankruptcy. At its lowest point last week, Elektrim's stock was down almost 20%, with investors pulling out on fears that the firm's liquidity problems may not be resolved in the near term.

But the company rallied back at the close of trade Thursday, finishing at zł. 16.15 per share after opening at its lowest price - zł. 14 - since February 1996. Investors regained confidence after news surfaced that Elektrim may not slide into bankruptcy despite reports that it does not have E100 million to pay holders of convertible bonds, due next month. The company is reportedly trying to persuade some of its biggest bond holders not to exercise their buyout option. Elektrim's board also said it was working on restructuring the company's short-term debt. Some analysts said Elektrim's financial situation would weaken further if it pays some $200 million to co-finance a stake in the state-owned G-8 group of power distributors.

In the IT sector, the Elektrim story was repeated on a smaller scale with fixed-line operator Netia, which finished up 8.5% after falling earlier in the week; Computerland was up 4.7%, while Softbank gained 2.3%.

Joe Harper