Stable investors hold the fort
The Polish financial markets appear to be undergoing something of a correction.
Some foreign speculators are jettisoning their Polish stock and returning to the US, helped along in their decision by the Monetary Policy Council's (RPP) decision to cut its main interest rate by 50 basis points to six percent. However, some analysts say that this emigration will only root out the weak, leaving more serious long-term investors behind and leading, ultimately, to a more stable and mature market.
The Central Bank set the ball rolling last week when it maintained its 'easing' policy bias and began cuts, which are expected to turn into a series of rate corrections.
This widely expected move, the first cut in two years by the RPP, was in response to a slowdown in economic growth and the likelihood that inflation will dip below its 2.5 percent target well before the end of 2005.
The RPP's decision came amid major fluctuations on the Polish financial markets. From a record high złoty value (up to zł.3.88 for EUR 1 and zł.2.9 for $1) in the beginning of March, the currency plunged to zł.4.17 for E1 and zł.3.22 against the dollar last Tuesday. Economists argue that the Polish exchange rate has been "absurdly" inflated before, and that recent levels are more in keeping with the market situation. In addition, exporters, pressed hard by the strong złoty in recent times, finally took a deep breath.
A drainage of assets from the Warsaw Stock Exchange (WSE), however, indicates that large amounts of foreign capital, from investors already satisfied with their earnings to date, are being drawn out of the country. To some extent, the increasing attractiveness of the US market is to blame and rate cuts in Poland support the trend. The WIG20 index of the largest companies has reported consistent loses in value since its peak at the end of February, losing as much as 3.5 percent daily. So is Poland and its currency, dubbed by some as the star of the 2004 season, set to lose favor with foreign capital?
In Warsaw, and abroad, much optimism prevails. For starters, speculative investors looking for quick gains, who were mostly responsible for inflating the złoty bubble, are the ones leaving the emerging Central and Eastern European (CEE) market. Stable, long-term investors have remained. Furthermore, as analysts from UBS Wealth Management point out, amid the global withdrawal from the CEE region Poland suffered the least, with the Prague and Budapest stock exchanges reporting bigger falls. In fact, a Pengab bank-sector survey in March said that the złoty is expected to be stronger at the end of this year than forecasted just a month ago. Finally, although the "emerging market" tag is still used by western banks and funds, Poland's low current-account deficit makes it a low-risk market.
"The longer we are in EU club, the more our image will change," says the chief economist at Citibank Handlowy, Katarzyna Zajdel-Kurowska. In the end, the only means of protecting against fluctuations caused by speculative capital is to become a destination for stable investors, which, according to the chief economist of BRE Bank, Janusz Jankowiak, is Poland's fate in the long term.
Some foreign speculators are jettisoning their Polish stock and returning to the US, helped along in their decision by the Monetary Policy Council's (RPP) decision to cut its main interest rate by 50 basis points to six percent. However, some analysts say that this emigration will only root out the weak, leaving more serious long-term investors behind and leading, ultimately, to a more stable and mature market.
The Central Bank set the ball rolling last week when it maintained its 'easing' policy bias and began cuts, which are expected to turn into a series of rate corrections.
This widely expected move, the first cut in two years by the RPP, was in response to a slowdown in economic growth and the likelihood that inflation will dip below its 2.5 percent target well before the end of 2005.
The RPP's decision came amid major fluctuations on the Polish financial markets. From a record high złoty value (up to zł.3.88 for EUR 1 and zł.2.9 for $1) in the beginning of March, the currency plunged to zł.4.17 for E1 and zł.3.22 against the dollar last Tuesday. Economists argue that the Polish exchange rate has been "absurdly" inflated before, and that recent levels are more in keeping with the market situation. In addition, exporters, pressed hard by the strong złoty in recent times, finally took a deep breath.
A drainage of assets from the Warsaw Stock Exchange (WSE), however, indicates that large amounts of foreign capital, from investors already satisfied with their earnings to date, are being drawn out of the country. To some extent, the increasing attractiveness of the US market is to blame and rate cuts in Poland support the trend. The WIG20 index of the largest companies has reported consistent loses in value since its peak at the end of February, losing as much as 3.5 percent daily. So is Poland and its currency, dubbed by some as the star of the 2004 season, set to lose favor with foreign capital?
In Warsaw, and abroad, much optimism prevails. For starters, speculative investors looking for quick gains, who were mostly responsible for inflating the złoty bubble, are the ones leaving the emerging Central and Eastern European (CEE) market. Stable, long-term investors have remained. Furthermore, as analysts from UBS Wealth Management point out, amid the global withdrawal from the CEE region Poland suffered the least, with the Prague and Budapest stock exchanges reporting bigger falls. In fact, a Pengab bank-sector survey in March said that the złoty is expected to be stronger at the end of this year than forecasted just a month ago. Finally, although the "emerging market" tag is still used by western banks and funds, Poland's low current-account deficit makes it a low-risk market.
"The longer we are in EU club, the more our image will change," says the chief economist at Citibank Handlowy, Katarzyna Zajdel-Kurowska. In the end, the only means of protecting against fluctuations caused by speculative capital is to become a destination for stable investors, which, according to the chief economist of BRE Bank, Janusz Jankowiak, is Poland's fate in the long term.
