Stocks take huge dive
Warsaw's bourse fell upon hard times last week after the total value of shares dropped to its lowest level since August 2006. On Wednesday alone, the main WIG index lost over 3.5 percent of its value and was 17 percent lower than at the beginning of the year. The bluechip WIG20 index, meanwhile, fell nearly eight percent over the Tuesday and Wednesday sessions, but regained some ground on Thursday.
The situation improved on Friday as well, after the main index closed at 47,128.67 and the WIG20 closed 3,000.56, marking one-day increases of 1.25 percent and 1.36 percent respectively. According to the Wigometr, an indicator of the mood on the WSE, around 45 percent of experts polled expect the WIG20 index to grow next week, while 18 percent expect a decrease.
Regardless, seven companies which were expected to hold IPOs in the near future have now decided to postpone their debuts. These firms included Hoopla.pl, ZM Herman, Pro-Bud, Hardex, and Harper Hygienics.
The causes
The catalyst for the tumble was generally global rather than local, analysts said. Foreign investors began withdrawing from emerging-market exchanges as a result of global worries, chief among them banking-industry woes in the US and fears of a recession there.
The Warsaw Stock Exchange (WSE) was especially vulnerable among emerging-market exchanges due to low turnover, traders said. "We have been weaker compared with other markets," Roland Paszkiewicz, chief analyst at CDM Pekao brokerage, told WBJ.
One domestic factor, however, has had a clear influence on the WSE's tumble - the weakness of small and mid-sized companies (SMEs). Last year, particularly in the summer, they attracted local investment funds and individual investors thanks to Poland's booming economy. As a result, bourse-listed SMEs became heavily overvalued.
"The valuations reached incongruous levels," said Błażej Bogdziewicz, an investment advisor at BZ WBK AIB Asset Management. He added that after the investment funds began selling their shares, many individual investors panicked.
Keeping calm
Minister of Economy Waldemar Pawlak asked investors to remain calm. "I appeal to investors to keep cool, strong nerves and not to give into emotion. The problems of other economies should not be brought into our economy," Pawlak said during a press conference last Thursday, stressing that Poland's economy remained strong.
"There is no reason that would justify tying the Polish economy to other regions. The fundamentals of the Polish economy are very solid," Pawlak told journalists. He added that the Ministry of Economy's analysis showed that GDP growth could reach six percent this year.
The analysts interviewed by WBJ were not afraid of a long-term crisis. "We can see the drop leveling off," Paszkiewicz said, noting that the upturn will be quite strong. "For the next couple of years the [WSE's] indices will be on the rise," he stressed.
Domestic focus
Investors should worry less about other markets and focus on domestic developments, analysts said. "People have overreacted to what is happening in the US," Paszkiewicz said. Of course, if the US market sees a recession, the situation could become more serious. But this is not a certain outcome at this point. If the situation in the US remains relatively stable [on the other hand], Poland's inflation will also stabilize, said Paszkiewicz. "In such a case, the peak of the inflation would take place in Q1 and level off from there," he concluded.
While Asia and Russia are gaining in popularity compared to the CEE region, Bogdziewicz was not worried. "CEE markets are not fashionable now ... but following trends is the worst thing an investor could do," Bogdziewicz said.
