Telecoms falter amid market comeback
Speculation on some of Poland's largest telecommunications firms continued to drive the local market last week, with the Warsaw Stock Exchange's (WSE) blue chip index clawing its way back from last month's long-term lows while a mix of reports plunged some companies to all-time depths and then allowed for their recovery.
"After a huge slump there is a natural tendency to bounce back," said Michal Szymanski, an investment manager with ING BSK Asset Management.
The blue chip WIG20 index climbed almost 3% to 1,189.77, the all-market WIG rose 1.14% to 13,218.21, and the TechWIG was up 3.12% to 673.21 for the week ending Thursday. Trading volume spiked to zl. 1.4 billion ($331 million).
Analysts expect the market to remain volatile for the next few months as domestic and international factors play on investors' minds. Locally, weak economic growth forecasts and problems with the budget are factoring into stock prices while across the Atlantic, Argentina a world away geographically but often lumped in with Poland as an emerging market appears at risk of defaulting on its $128-billion debt and crashing its currency.
The Argentina crisis has diminished, Szymanski said, though the home front remains troubled.
"What's going on with the budget heavily depends on economic growth in the third and fourth quarter of the year," he said. "If the tendency remains from the first half, we can expect continuing problems with the budget. It adds a lot of uncertainty."
The Economy Ministry last month estimated 2.5% growth for the entire year but many private-sector forecasts are less rosy. With fiscal policy, the Senate last week ratified a revised budget opening the way for the president's signature and implementation of a plan that includes greater deficit spending than originally figured and vague expense cuts. With privatization revenues uncertain and elections scheduled for Sept. 23, it is unclear how Poland's official borrowing and spending will play out through the rest of the year.
Some macroeconomic news last week offered hope for markets. Food prices fell 1.1% in the second half of July, according to the Central Statistical Office (GUS), indicating that overall inflation could drop below 6% year on year for the month. The news fired hope that the Monetary Policy Council (RPP) might lower interest rates during an Aug. 21-22 meeting, though earlier rate cuts have done little to spur Polish equities. Also last week the National Bank of Poland (NBP) announced June's current account deficit figures well above market expectations, though most observers attributed the surprise to one-off outflows. According to a Bank Handlowy analysis of the numbers, exports rose for the 14th consecutive month while imports dropped; foreign direct investment reached $2.6 billion through June, only slightly below last year's pace; and portfolio investment has dropped by about $860 million since April.
On the corporate side, heavily traded Telekomunikacja Polska (TPSA) hit an all-time low when talks between the treasury and a consortium led by France Telecom dissolved without an agreement for the French to increase their stake in Poland's dominant phone company. TPSA's stock did not pick up when the treasury announced ongoing negotiations over the stake and for the week TPSA slipped 7.4% to zl. 15.10 per share.
Netia, the country's biggest alternative fixed-line telecom company, was bludgeoned last week on growing fears over its financing and future prospects. The company has not grown in line with market expectations and on Tuesday the firm's stock fell more than 10% and hit an all-time low on bankruptcy rumors. Later in the week, Swedish telecoms operator Telia told Reuters that it was looking at funding options for the troubled company, in which it owns a 48% stake. For the week, Netia's stock sank almost 18% to zl. 12.80 per share.
"Telecom stocks have been falling for the entire year," Szymanski said. "Right now these fit the broad picture."
