Strong market anticipates rate cuts
Polands blue chip stocks last week hit levels not seen since mid-July on hopes for an improving economic picture, but the market could not sustain the upward trend through the end of the week.
The market sees that inflation is lower and expects that (interest) rates will be cut, said Włodzimierz Giller, an analyst with Erste Bank. It also seems that the slowdown of (gross domestic product) GDP at this moment has hit the bottom. The market expects that it can only be better in the future.
The Warsaw Stock Exchange (WSE) held on to some gains for the week, though it could not maintain the three-month high. The WSEs blue chip WIG20 index climbed 2.2% to 1,170.22 points, the all-share WIG index was up 1.3% to 12,997.87 and the TechWIG index jumped 6.8% to 661.27 for the five-day period ending Thursday. Trading volume was healthy at zł. 1.72 billion ($409 million).
Investors were especially optimistic that interest rates would fall when the Monetary Policy Council (RPP) meets this week. Polands consumer price index (CPI) registered at 4.3% year on year in September, the Central Statistical Office (GUS) announced last week. That is well below the 6-8% year-end target set by the central bankers, who consider price stability a top priority. The RPP last cut interest rates in August, the fourth clip of the year. A 100 or 200 basis point cut would still leave interest rates the highest among Polands free-market neighbors.
The Oct. 15 CPI announcement fueled a 5.6% burst on the WIG20 the following day, when the market reached a three-month peak.
The inflation figures were followed by industrial output data showing only 0.6% year-on-year growth in September, and the producer price index (PPI) sliding to a 0.4% annual increase in September, according to GUS. The figures indicate low domestic demand and forced some downward revisions of growth expectations for the year.
Even with global economic gloom and the poor domestic performance so far this year, Polands economy is expected to improve, and with it, local companies are expected to perform better. So while analysts said the WSE might extend losses for a short time, in the medium term an upward trend is expected.
IT firms took the heaviest beating during this years bear market and are expected to have some of the best upside potential. The TechWIG has fallen about 55% since Jan. 1 and last week the economic downturn looked set to claim its first Segment for Innovative Technology (SiTech) firm.
Wrocław-based IT distribution firm STGroup last week filed for bankruptcy after creditors demanded repayment of debts and the bank accounts were frozen, Parkiet reported. STGroups debts amount to zł. 68 million ($16 million). The companys share price fell 34% on the week, closing at zł. 0.38. At its peak in April 2000, the company had traded above zł. 27 per share.
But other companies, including blue chips though especially technology firms with sound fundamentals, are poised to show some of the strongest gains in the coming months, Giller said, mentioning Warsaw-based software and IT systems firm Prokom and Warsaw-based IT services firm ComputerLand.
ComputerLand last week announced a zł. 62 million ($14.76 million) contract with Tel-Energo, the domestic operator of the nationwide fiber-optic network for the power industry. The deal includes delivery, installation and implementation of a data-transmission platform by the end of the first quarter 2002.
The contract amounts to 12% of ComputerLands 2001 sales and provides a substantial improvement of its order backlog, said ING Barings in a report. Diversification of revenue sources positions the company to weather the IT industry slowdown, and hence makes it the least-risky IT stock in Poland, the analysis said.
A recent CDM Pekao report also touted ComputerLand, noting that the current economic slowdown is translating directly into lower IT outlays, but ComputerLand is handling this rather difficult situation relatively well thanks to diversifying its operations and to the restructuring it carried out.
The companys stock rose 5.9% to zł. 92.60 per share for the five-day period ending Thursday.
