Strong zloty brings on investor malaise
Positive current account and trade figures boosted the Warsaw Stock Exchange (WSE) late last week, although not enough to overcome low investor interest and a general downward trend that countered strong gains from two weeks ago.
"The market depended on macroeconomic factors," said Jakub Korczak, an equity analyst with CA IB Securities. "The most important information was connected with the Monetary Policy Council (RPP) announcement and then the announcement of the trade and current account figures from the National Bank of Poland (NBP)."
The blue chip WIG 20 index fell 1.8% to 1,467.89 while the TechWIG dropped 3.1% to 936.54, erasing some gains from the previous week. The WIG index, which tracks the entire market, skittered 0.5% lower to 15,630.3. In the absence of major company announcements and mixed signals from monetary authorities, turnover was a light zl. 942.4 million ($235.6 million).
The market had not anticipated an interest rate cut, but the RPP's decision to stand pat held investors off. Citing a growing budget deficit and keeping an eye on inflation, the RPP last week left interest rates unchanged. Coupled with positive current account and trade figures, the move helped keep the zloty strong against the dollar and the euro.
"I believe if we will still see strengthening of the zloty, then the demand from investors will be very weak (in the coming days)," Korczak said. "It can halt the market for a moment."
The 10-member RPP held rates at 17-21% despite calls from government officials for a reduction. Twice this year the RPP cut one percentage point off interest rates and economists generally see room for further reduction, though probably not until the end of June or as late as August. RPP officials remain adamant that loose fiscal policy limits room for further cuts.
Current account deficit information released Thursday added to the currency's strength. Poland's current account deficit was $614 million in April, bringing the shortfall in the January-April period to $2.78 billion, the NBP said Thursday. The figures were significantly lower than market expectations and could bring the deficit below 5% of gross domestic product (GDP) for the year, much healthier than the peak of 8.3% in March 2000.
The zloty rose to 3.9 to the dollar and 3.4 to the euro following the deficit announcement and stayed at about those levels through Friday.
"It's very strong and I think it will be strong until we see bad current account data, which should be in the third quarter," said Maciej Reluga, an economist with ING Barings. "I expect a strong zloty to contribute to a worsening of the current account deficit and foreign exchange adjustment."
The high interest rates and strong currency are keeping investors away from the WSE, analysts said. A lack of major corporate announcements and activity contributed to the malaise.
Kredyt Bank stirred some interest with an announcement that its strategic investor, Belgium-based KBC, plans to up its stake in the bank to 75% from less than half.
"This is a sort of a confirmation of an existing takeover," said William Vincent, head of emerging market research with ING Barings. "For KBC it is a question of strategy. Poland is one of the most exciting bank markets in the world in terms of growth.
"It's a very sensible thing to do," he added.
Kredyt Bank's share price closed the week ending Thursday up 4.6% to zl. 18.20.
For the week, the heaviest traded stocks were Telekomunikacja Polska (TPSA), power and telecoms group Elektrim, oil group Polski Koncern Naftowy Orlen (PKN Orlen) and Pekao bank.
