Trends for the future

I would treat the potential drop in share prices at the beginning of 2006 as an opportunity to buy shares of companies in the materials and energy sectors. At the WSE one can find a number of big and medium-sized companies with relatively low valuation levels (a price/earnings ratio below 10 or price/book value ratio below one) such as KGHM, Lotos, MOL, PKN Orlen, Ciech, Dwory, Police or Puławy.

Relatively low valuation levels in the case of these companies stem from the current expectations of an upcoming global economic slowdown triggered by the constantly growing US Federal Reserve interest rates. If, as I expect, a significant slowdown doesn't appear in H1 2006, and economic upturns that began in the eurozone and Japan in spring continue, then the high prices of natural resources will remain unchanged for some two to three more quarters. This should translate into increased share prices in the aforementioned companies. To sum up - buy on dips.

A possible economic slowdown in H2 2006 could create an opportunity to turn investors' attention to a second group of potentially interesting companies listed on the WSE. I mean here small construction and assembly enterprises whose share prices are still near the record low level they reached as a result of a breakdown in investments in the years 1998-2003. Assuming that another investment boom is approaching, a well-composed share portfolio of small construction-assembly companies should bring equally attractive profits in the years 2006-08 as was the case for production companies' shares in the period 2003-05.

Wojciech Białek, Chief analyst in SEB TFI