Rally despite rate cut disappointment
Despite initial disappointment with the depth of an interest rate cut last week, the Warsaw Stock Exchange (WSE) broke through to levels last seen in July, though analysts warned that further growth potential is limited.
"Our position would be that we are, I think, approaching the upper limit," said Rafał Wiatr, head of research for Dom Maklerski Banku Handlowego. "We don't think there is a lot of upside potential from current levels in the near term."
The WSE's blue chip WIG20 index rose 3.3% to 1,208.64, the all-market WIG index was up 3.4% to 13,443.94 and the TechWIG index gained 4.3% to 678 for the five-day span ending Thursday. The market added further gains Friday. The week's volume was zł. 1.34 billion ($335.38 million), down from the previous week.
The WIG20 index, the most watched measure of the WSE's performance, broke the 1,200-point barrier for the first time since July 16, when it hit 1,228.93 and spent three days above the psychological barrier. Blue chips have gained more than 22% since bottoming out at new long-term lows early this month.
It is unlikely that the WIG20 will advance and stay beyond 1,300 in the medium term, Wiatr said.
Stocks gained on expectations of a significant interest rate cut, which came last week when the Monetary Policy Council (RPP) slashed 1.5 percentage points from the central bank's 28-day intervention rate, bringing it to 13%. That is the lowest level since August 1999 and followed four other cuts this year, but markets had hoped for more. Following the rate cut announcement Thursday, the WIG20 shed about 2.7% and managed to end the day barely up.
"It looked like at that point it was priced in a bit more," Wiatr said. "The market believes there is room for additional rate cuts."
On top of rate cut anticipation, optimism for Poland's economic outlook and budget situation helped build investor confidence. Meanwhile, international markets showed some strength, assuring some investors.
For the five days ending Thursday, the New York-based Nasdaq Composite Index was up 7.4% and the Dow Jones Industrial Average improved 3.3%. The FTSE Eurotop 300, a pan-European blue chip index, floated 0.7% higher. The U.S. indices performed well despite grim economic news and managed to reach pre-Sept. 11 levels.
The WSE was also helped by some companies that did not perform as poorly as expected in the third quarter, with earnings reports showing glimmers of hope. Mining and telecoms conglomerate KGHM Polska Miedź leapt by 4.6% Oct. 22 following a statement showing a zł. 53.5 million ($12.7 million) unconsolidated net profit for the first three quarters of 2001. While the numbers indicate a third-quarter loss, the figures were not as bad as expected.
"KGHM was much better than expected - a much smaller loss," Wiatr said.
The country's biggest copper miner ended the week up 3.2% to zł. 11.35 per share.
In other corporate news, the unconsolidated net profit of Polish tire maker Stomil Olsztyn rose to zł. 19.4 million ($4.62 million) in the July-September period, a 26% jump from the same period last year, the company reported. The earnings report was followed last week by an announcement that the firm would shut down production for two weeks in a cost-cutting move aimed at getting rid of reserve stock. The company blamed market conditions.
Stomil Olsztyn's shareholders have for years fought a running battle over control of the company, with minority shareholders this month rejecting a public tender offer by France's Michelin to take full control. Michelin, Stomil's majority owner, raised its stake to 65.8% - about a 3% increase - earlier this month, but was unable to gain more of the company when it offered zł. 24.5 a share.
Institutional investors have long blamed Michelin for operating at minority holders' expense. The corporate battle has touched on several issues and lasted since the French firm's 1995 investment.
Despite the turmoil, the tire maker, based in northeastern Poland, saw its share price increase 9.6% to zł. 27.50 per share. The company's stock is up 3.4% since the same time last year.
