Market weakened by budget concerns
Investors continued to sell off Polish equities last week as the national economic picture blurred and international markets stumbled, adding to the downward slide that has characterized trading this year.
"The market is very nervously waiting for the outcome of the budgetary problem," said Artur Szeski, director of research at Centralny Dom Maklerski Pekao. "Everything is driven by the troubles with the budget."
For the week, the Warsaw Stock Exchange's (WSE) all-market WIG index dropped 3% to 12,178.2, the blue-chip WIG20 index shed 2.8% to 1,087.12, and the TechWIG was down less than 1% to 607.56. All shares together have lost more than 30% of their value since Jan. 1.
Volume for the week, clipped by a holiday Wednesday, was a scant zl. 455.6 million ($108.5 million).
Domestic and international investors were preoccupied with a potential budget crisis, analysts said, and Poland's government last week failed to resolve the fiscal situation when they rejected an austerity package proposed by the Finance Ministry. (See article on page 1)
"The situation is not very rosy," Szeski said. "We still have not heard any detailed plan to deal with the situation."
Analysts concede that the WIG20 index could dip below 1,000 for the first time since October 1998, when it was rocked by the Russian crisis.
"There was support at 1,100 this line was broken, and from a technical point of view this is a sign of continuing the downward tendency," said Piotr Dudzinski, a broker with Dom Maklerski Banku Handlowego. "It will probably execute a full downward move to 900 or 1,000 points, then there would be room for a correction."
A sustained recovery is unlikely until after the Sept. 23 elections and after the budget situation is resolved, he said.
International markets also infected Polish equities, as Japan's Nikkei average Friday fell to its lowest close since December 1984, the London FTSE slipped Wednesday and Thursday, and the Nasdaq Composite Index dropped to its lowest point since April 17 on Wednesday. The Nasdaq's Thursday rally did not favorably impress WSE traders.
Market jitters apparently began to scare international investors away from healthy companies, and even blue chips with strong first-half earnings reports suffered from sell-offs. Bank Pekao, generally a favorite among international investors because of strong liquidity and stable profits, was noticeably hit. Poland's largest listed bank saw its consolidated net profits rise 37% to zl. 485.2 million ($115 million) in the first half of the year, according to a company statement. But for the week, the company's share price tumbled almost 8% to zl. 64.10.
"Foreign investors are nervous right now," Szeski said. "So, for example, Pekao lost value. It's a very widely held stock, and I think the additional supply is also coming from abroad."
Oil refiner and retailer Polski Koncern Naftowy Orlen (PKN Orlen) last week said that its second-quarter consolidated net profit increased 58% to zl. 214.4 million ($51 million), but on the week its share price crept slightly lower to zl. 16.30.
Companies with bad first-half results had no chance.
Copper mining and telecom group KGHM Polska Miedz announced a consolidated net loss of zl. 44 million ($10.4 million) for the first half compared to a zl. 275 million ($65.5 million) profit in the first half of 2000. For the week the company's share price took a 15% nosedive to zl. 12.95.
Telekomunikacja Polska (TPSA)'s second-quarter consolidated net profit was off 7% to zl. 179.8 million ($42.8 million), the firm said. Its share price has been deeply affected by the government's inability to have its strategic investor, France Telecom, increase its stake in TPSA and by bad sentiment toward telecom companies. For the week, TPSA's share value fell 6% to zl. 12.35.
"TPSA is heading below zl. 12 and it will continue this move to zl. 11 or so," Dudzinski said. "Also KGHM is very weak, simply because of poor results and lower copper prices. Yesterday (Aug. 16) Pekao broke a strong support line and was down more than 5%. These three companies can really pull the market down."
