Stocks report: The end of euphoria

The moment was used by some investors to close their positions at very high levels. The rest of the week belonged to the bears. The WIG20 fell steeply throughout the week and dropped below the 2,800-point level. Selling was encouraged by a political dispute in Parliament and quite negative developments on US stock markets.

Polish stocks can be considered quite expensive as far as historical price/earnings (P/E) ratios are concerned. Currently only 11 WIG20 members have a P/E ratio below 20, and this will be very hard to maintain. The P/E ratio of the market has a long-term tendency to revert towards its mean. So even the best results from Q4 2005, which will be released in the coming two weeks, can be used by investors to click on the "sell" button.

Last week's sell-off hit blue chips (i.e. WIG20 members) the hardest. The MidWIG was much stronger, which shows the growing sentiment for small and midcaps. Along with a weakening złoty, this can be interpreted as profit-taking by foreign investors in WIG20 companies, and bargain hunting by domestic funds in the mid- and small-cap sector.

Adam Łaganowski,

WGI Dom Maklerski