Seamless coalition deal helps spur rally

"Belka was the best choice ... He is respected in financial markets around the world."
By : Jeffrey Sparshott

   Bolstered by the quick formation of a coalition government and market-friendly cabinet as well as strong gains on U.S. and European bourses, the Warsaw Stock Exchange (WSE) last week surged to its highest level since Sept. 10.

   “When investors saw the coalition agreement, it looked OK so they decided it was high time to buy stocks,” said Marcin Materna, investment adviser with Dom Maklerski BIG-BG.

   The WSE’s blue chip WIG20 index surged 13.3% to 1,144.99, the all-share WIG index rose 9.4% to 12,828.59, while the TechWIG index jumped nearly 22% to 619.12 for the five-day period ending Thursday. Trading volume was strong at zł. 1.47 billion ($349.7 million).

   In the United States, the tech-heavy Nasdaq Composite Index by Thursday’s close reached highs not seen since the Sept. 11 terrorist attacks, pushing ahead 6.5% for the week. The FTSE Eurotop 300, a pan-European blue chip index, was up nearly 3%.

   Poland’s stock market rise lagged by several days behind other bourses as political worries kept investors at bay. While the international upward trend began strongly two weeks ago, the WSE continued feebly until Oct. 9, when the WIG 20 jumped 4.5% and followed the next day with a 5.6% gain. “The coalition problem delayed the upward trend seen elsewhere,” Materna said. “Only after the coalition formed, it was time for the upward trend.”

   Prime Minister Leszek Miller last week announced his cabinet lineup following the signing of a formal coalition agreement with the Democratic Left Alliance (SLD), the Labor Union (UP) and the Peasants Party (PSL). The appointments become official following approval by the Sejm, which could come as soon as Oct. 19.

   Marek Belka, respected by financial markets because he has proposed tough measures to stabilize the budget, will be the next finance minister, and one of three deputy prime ministers. Belka will have to rein in a budget deficit, which in a worst-case scenario, could balloon to zł. 88 billion ($20.95 billion) in 2002, much more than the government could finance without severely hurting the economy.

   Analysts said that while his proposals may have cost his party votes during the election, his general plan to cap spending and limit tax hikes is welcome news. “Belka was the best choice,” said a Warsaw-based broker who asked not to be named. “He is respected in financial markets around the world.”

   While happy with the rally, and viewing it as a sign that the market hit bottom with three-year lows two weeks ago, analysts said the WSE is likely to remain volatile.

   Nevertheless, liquid blue chip, tech and telecom stocks fed on strong investor sentiment, with some TechWIG listings especially strong. In the telecoms sector, Telekomunikacja Polska (TPSA) benefited from renewed international and pension fund interest, jumping 24.7% to zł. 13.90 per share for the week, while alternative long-distance carrier Netia, one of the most beleaguered stocks this year, rose 36.9% to zł. 3.75. IT firms Comarch (14.9% to zł. 38.50), ComputerLand (18.6% to zł. 87.40), Optimus (15.6% to zł. 48.80) and Softbank (35.2% to zł. 24.20) all saw double-digit gains.

   In the financial sector, Bank Zachodni WBK (BZ WBK) began a climb out from an oversupply of shares. Recently named to the WIG20 index, BZ WBK had been trading poorly since the merger of Bank Zachodni and Wielkopolski Bank Kredytowy produced the June 25 listing on the WSE. An attempt to sell a tranche of employee shares also fell flat in September.

   “BZ WBK is recovering from the big supply from the Bank Zachodni employee shares,” Materna said. “Now is an opportunity for investors to buy shares very cheaply.”

   BZ WBK is the fourth-largest publicly listed bank in Poland, trailing Bank Pekao, Bank Handlowy and Bank Œlšski.

   BZ WBK’s stock was up 17.2% to zł. 34 for the five-day period ending Thursday. The bank started trading June 25 at zł. 43.70 per share.

   Brokers speculated that pension funds, the largest institutional investors in Poland, upped their spending on equities last week after scaling back their exposure earlier in the year.