Market slumps as political and economic woes deepen
By : Jeffrey Sparshott
With an eye to telecom issues, the Warsaw Stock Exchange's (WSE) blue chip index on Wednesday hit its lowest level since the Russian crisis disturbed markets in 1998, though by Thursday the main indices rebounded. While Polish stocks came off the new long-term lows, analysts cautioned that trade volumes have been especially weak and the immediate trend is still negative on the WSE.
"In the medium-term I am pretty sure we are still in a downward trend," said Pawel Puchalski, senior analyst with Raiffeisen Capital and Investment Polska. "I think we haven't hit the bottom yet."
For the week, the blue chip WIG20 index was down 2.9% to 1,155.41, the all-market WIG slid 2.8% to 13,069.67 and the TechWIG was thumped, dropping 6.8% to 652.86. Since Jan. 1, the WIG20 has shed 36.4% of its value.
Turnover last week was slight at zl. 934 million ($222 million).
The early-week decline followed reports that Polish legislators wanted to break up telephone monopolist Telekomunikacja Polska (TPSA), analysts said. The heaviest-traded stock on the WSE fell almost 5% in one day, dragging the bourse down with it.
"It was definitely very negative news, or quasi-news," said Piotr Kazimierski, co-head of equity sales at SG Securities, of the MPs' proposal. Investors later shrugged off the news and the stock started to rally Thursday, though all eyes are on the July 31 deadline for TPSA's strategic investor, France Telecom, to up its stake in the company. (See story, page 1)
Despite the late boost, TPSA ended the week down 8% to zl. 16.30 per share.
While TPSA helped, Elektrim was the most important catalyst for the market's Thursday rally, analysts said. France's Vivendi Universal appears poised to ink a deal with Elektrim for control of Polska Telefonia Cyfrowa (PTC), the country's largest cellular telephone company. Elektrim was caught in the middle of a prolonged battle with Vivendi and Deutsche Telekom over control of PTC, leading to several legal maneuvers aimed at limiting Elektrim's ability to sell a stake in the firm.
"Vivendi decided to cancel all the cases against Elektrim in arbitration court," Kazimierski said. "That pushed the stock higher."
The two companies appear to have worked out agreements on several fronts, analysts said. In late June, Elektrim agreed to sell the firm's fixed-line telecom and Internet-related businesses to Vivendi. The French company also agreed to issue Elektrim a one-year loan to help cover debts.
Elektrim surged by 7.2% Thursday, though for the week it was down 2.4%, ending at zl. 18.65 per share. Most brokerages consider Elektrim shares a good buy.
"It is extremely undervalued at the moment," Puchalski said.
While Elektrim was on the upswing, most tech and telecom stocks have been unable to overcome poor investor sentiment and, most recently, poor second-quarter earnings reports. One of the hardest-hit companies was Netia, the country's largest alternative telecom operator. On Wednesday the firm's stock tumbled 7.5% to a new all-time low of zl. 15.30 per share and ended the week down more than 30% at zl. 15.60.
IT stocks were mixed Prokom lost 4.5% to zl. 96.50 and Softbank dove 17.8% to zl. 18.25 while Optimus managed to climb 4.3% to zl. 44 and ComputerLand inched up to zl. 83.70.
Aside from a few bright spots, overall earnings reports were a disappointment across sectors.
"Of course, everyone expected that they would be weak, and they were," Puchalski said. "But there is a difference between expectations and the actual statements. You expect weak but you have hope that it won't be too bad. But almost every sector of the Polish economy is suffering."
While earnings reports are contributing to the market's poor performance, the political and economic climate is also dampening investor sentiment, Puchalski said. "If you take a look at our economic situation, some corruption allegations among officials, the budget deficit, official projections on the economy (and) high interest rates, there are worries," he said. "It's a disaster, to be quite truthful. The only good thing is decreasing inflation."
The situation is scaring off international investors, he said.
Kazimierski added that limited interest is likely to continue. "There is still disinterest in the market rather than interest," he said.
