Pessimism takes root as WSE fails to climb out of macro doldrums
Economic and budgetary uncertainty, pessimism about second-quarter earnings reports to be released at the end of last week and Softbank's severely revised financial projections for the year fed poor sentiment during a feeble stretch of trading on the Warsaw Stock Exchange (WSE) last week, analysts said.
"I think that the very bad macroeconomic situation was very important, as well as the problem with the budget, and I think the market is afraid about a future economic slowdown," said Radoslaw Czyrko, an analyst with Erste Securities Polska. "There was the expectation that the second half (of the year) would be much better but now the market expects the slowdown to be more dangerous with companies."
The WSE's blue chip WIG20 index last week backtracked 1.5% to 1,189.28, the all-share WIG inched up to 13,441.88 and the TechWIG fell 3.4% to 700.57. Turnover was slight at zl. 992 million ($236 million).
On the macroeconomic front, industrial and manufacturing production figures released last week fell sharply in June. Inflation and producer price figures also resumed a downward trend, offering some hope for an interest rate cut. Central bank officials, however, left rates untouched during a meeting last week. Investors also eyed the budget debate in the Sejm, where a vote on an amended spending plan is expected this week.
While the government debated the economy, investors braced for the worst prior to Friday's release of unconsolidated financial reports from many listed companies.
"The expectations about the results are in general bad," Czyrko said. "The results will have a big influence on stocks."
Foreshadowing the low expectations, Softbank last week downgraded its financial forecast for 2001, slashing estimated net profits by about half and estimated revenues by roughly 10%, according to analysts.
"I think that this correction precisely expressed that Softbank cannot achieve operating margins as the company expected at the beginning of the year," said Maria Skowron-Szafranska, an IT analyst with CDM Pekao securities. "I don't know why the company decided to make a downgrade so late, because I think they knew they could not achieve those margins after the first quarter."
Skowron-Szafranska said the company's planned foray into public-sector contracts also affected the bottom line because government budgets cannot afford planned expenditures on sophisticated IT solutions and tenders are being postponed. The main culprit in the revision, however, remains an inability to improve operating margins rapidly because of high costs and stiff competition that forces aggressive pricing for contracts, she said.
Softbank, a Warsaw-based IT solutions integrator, blamed the revision on a poor economy and losses on web-related operations.
The company's share price dipped 9.8% following the announcement and ended the week down 17.8% to zl. 22.20 per share.
Other stocks associated with Internet and high-tech operations suffered in the wake of Softbank's announcement; for the week Prokom software was down 6.5% to zl. 101 per share, Optimus lost 8.3% to zl. 42.2 and ComputerLand was off 5.5% to zl. 83.
On the telecom side, Telekomunikacja Polska (TPSA) offered a brief bright moment early in the week when rumors surfaced that France Telecom (FT) reached an agreement with the Treasury Ministry and would take a 10% stake in the Polish telecom provider. The stock spiked and over the course of the week was up more than 8% to zl. 17.75, though the rumor was never confirmed.
FT led foreign investors in Poland in 2000 when, together with Poland-based Kulczyk Holding, it bought a 35% stake in TPSA from the Treasury Ministry. Part of the agreement allowed FT to up its stake this year but the company has backed off because TPSA's stock price plummeted below the price on FT's purchase option.
