Multiple factors weigh down WSE
Slowing economies in the United States and Poland added volatility to the Warsaw Stock Exchange (WSE) last week.
News that the Polish government had cut its 2001 gross domestic product (GDP) growth forecast from 5.1% to 4.5% factored into its decision to amend the budget draft, which increased the economic deficit to 1.8% of GDP from an earlier planned 1.6%. It is estimated at 2.7% at the end of last year.
Also affecting the economic deficit and the markets slightly was the government's decision to earmark zl. 1.9 billion ($463 million) of zl. 3.1 billion ($756 million) in UMTS revenue for spending instead of financing the budget.
This raised fears that Poland's sky-high 19-23% interest rates might not come down as quickly as previously hoped one more reason stock prices suffered on the week.
More negative news pushing back the probability of near-term interest rate cuts was an extra zl. 800 million ($195 million) in the money supply from the sale of T-Bonds, said Pawel Borys, an analyst at Erste Securities Polska. The revenue, originally intended as collateral for foreign debt, was instead used for budget expenditures, Borys said.
Now, "probably the Monetary Policy Council (MPC) will wait and see what happens with inflation and the current account in January and February (before lowering rates)," he said.
A Nasdaq surge of 4.6%, the first three-session increase in months, helped offset losses caused by budgetary and macro worries, however.
By Thursday's close, the all-share WIG index had lost 5.44% on the week to 16,903.5 points and the large-cap WIG-20 had lost 6.34% to 1,710.5. Sliding further on continued sour sentiment for IT issues was the TechWIG, down 8.38% to 1,314.1 points.
Copper and telecom group KGHM Polska Miedz fell another 7.05% by Thursday's close to zl. 22.40 per share after a similar loss the preceding week.
The losses are partially a result of KGHM's plan to issue O1 billion in eurobonds, most likely to finance its telecom activities.
KGHM's phone operator Telefonia Lokalna said it would require a capital increase in addition to its zl. 422 million ($103 million) in planned investments this year.
Also, Borys said, rumors are that KGHM might be preparing to increase its 19.6% stake in Polkomtel to 33%. The copper giant would likely buy the stake from oil giant Polski Koncern Naftowy Orlen, which also holds 19.6%, he said.
It's also rumored that KGHM is eyeballing Norddeutsche Raffinerie.
Another fear for KGHM is that first quarter 2001 results could be bleak. Recent changes in the supervisory board, in which the treasury acted against investor wishes, turned many would-be investors away. Also, treasury-enacted changes to the depository for global depository receipts left some investors unable to register their shares, Borys said.
Erste has a "buy" recommendation on KGHM with a target price of zl. 35. The price for the stock is now so low and undervalued that it can't go any further, Borys said.
The financial institution values Polkomtel at zl. 15 per share, which leaves KGHM's core copper business at a mere zl. 6 per share.
While the company is gradually phasing itself out of copper mining as it gets deeper in telecoms, the core business is still valued at zl. 20 per share, Borys said.
Another telecom company to suffer on the week was Elektrim, which announced it would take part in the privatization of the power and mining sectors.
Elektrim, which is $4 billion in debt, finished Thursday down 7.98% to zl. 46.10, partially on concerns debt will grow.
