Where to turn?
Last week did not begin well for investors. Global markets nose-dived last Monday on news that the US House of Representatives had rejected a $700-billion financial bailout plan and that major banks in Britain, Belgium, Germany, Iceland and Ireland had either been nationalized or suffered heavy losses. At close of trade in Warsaw, the WIG index had dropped by 4.2 percent and the blue-chip WIG20 had lost 5.03 percent, falling to 36,854 and 2,334 points respectively.
A total collapse of the global financial system did not occur, however, as doomsayers had been predicting. The US, Polish and other markets began a cautious rally on Tuesday as investors hoped that the worst was over and that the US Congress would soon agree on a deal. The latter hope, at least, was fulfilled, with the Senate approving a new bill on Wednesday and the House of Representatives doing the same on Friday.
On Friday the WIG and WIG20 saw a mixed finish, ending on the respective levels of 36,830 and 2,352.16.
Mixed signals
While a number of analysts have stressed that the Polish economy is insulated against the global economic crisis, last week's events nonetheless raised serious concerns about the future and stability of Polish banks, many of which are controlled by international institutions.
Fortis Bank Polska, for example, saw its parent company nationalized by the Belgian, Dutch and Luxembourg governments. Meanwhile, major losses were suffered by Italian UniCredit, German Commerzbank and Allied Irish Bank, owners of Pekao (Poland's largest bank), BRE Bank and BZ WBK, respectively.
"Following the financial crisis, our banks will look different," Jacek Chwedoruk, the managing director of Rothschild Polska, told Rzeczpospolita. Fortis Bank, Bank Handlowy (a subsidiary of Citibank) and financial companies from the AIG group are all likely to be targets of acquisitions. However, Stanisław Kluza, the chairperson of the Polish Financial Supervision Authority (KNF), has gone on record as saying that the situation of the banking sector in Poland is stable.
Thus, with mixed signals being sent, the mood among investors has been one of uncertainty.
"The situation nowadays is all the more difficult since it could develop in a totally unexpected direction," said Tomasz Publicewicz, an expert from financial website Analizy Online. "It is hard to draw analogies with the bear market of 2001, since a situation like we have today has not been seen for decades," Publicewicz added.
Investors thus face a dilemma - to ride out the storm or seek their fortunes elsewhere. "The macroeconomic environment says 'yes' to investment, but the situation on the markets says 'wait,'" said Rafał Tuzimek, the president of Navigator Capital, an M&A, IPO and financial consultancy.
Tuzimek was cautious about predicting whether people should invest and in what.
"This is the question that everybody is asking nowadays. I would be surprised if anybody were certain about what to invest in," he told WBJ. Right now everyone is watching and waiting for the global situation to develop, he said.
Analizy Online's Publicewicz was also cautious, saying that there was no simple template for dealing with times of crisis.
"The most careful or inexperienced investors, or those who are interested in short-term investments, will do nothing, while the least risk averse will follow the rule that the time of blood is the best to make purchases," he said.
Publicewicz said that he would "advise returning to the market when it recovers." He added, however, "I wouldn't recommend trying to catch the falling knife."
With the stock markets so volatile, what real alternatives do investors in Poland have? Experts contacted by WBJ were reluctant to discuss concrete options.
One possibility, however, is currency futures. Last week, for example, new currency futures based on the British pound and Swiss franc were offered on the WSE. A total of 16 currency futures are currently on offer on the bourse.
"Interest from Polish investors in bourse-listed currency futures contracts is growing. The [crisis] in the stock market and problems on financial markets means it is a good time to explore a new sector," said Robert Kosowski from X-Trade Brokers. He added that currency futures for popular currencies could be an alternative for people who weren't averse to fluctuation.
A bear market provides plenty of encouragement for investors to investigate such products, Jakub Zabłocki, the president of X-Trade Brokers said. "Recent months have seen growth in this segment," he added.
According to X-Trade Brokers' data, over 21,000 contracts for currency futures contracts were signed between September 1 and 26 - three times more than in the whole of 2007.
Hedging bets
Hedge funds are also an option for investors, although global scrutiny on the practice of short-selling may dampen enthusiasm for them.
Nevertheless, Swiss fund Aldini AG is counting on interest from the market. A subsidiary of the Rasini Group, Aldini has recently entered Poland, offering premium-level asset management and hedge fund services, as well as tax advisory services.
Poland is the company's first location for foreign expansion. Aldini Polska's basic offer will include 10-15 year investment products that it says will guarantee a stable return. The firm plans to enter Moscow and Dubai as well.
Too much risk?
Speculative and risk-heavy financial instruments will not attract mass-market investors, experts said.
"They will only amount to a niche," Analizy Online's Publicewicz said.
Andrzej Szablewski from the Warsaw School of Economics (SGH) was also skeptical as to whether such options would be attractive for investors.
"I don't believe they will see many clients since the crisis has not passed yet," he said. He noted, however, that the financial-product market would see huge growth in the future.
The real estate market has proven a viable - and profitable - alternative to the bourse, especially over the last several years. Still, this year's slowdown on the residential market invites caution, Szablewski said.
"Developers' Q4 results will provide an answer about whether to invest in them or not," he said. "The [residential] market may recover and see growth in two-three years' time, when the prices stabilize," he added.
According to Szablewski, land remains a safe investment. "Within the next five to seven years, the price of plots may double or triple," he noted. Demand for land is expected to remain strong, despite any slowdown in development.
The Polish market may see a large number of petty individual investors turn away from riskier financial instruments and embrace bank deposit products, said Błażej Lepczyński of the Gdańsk Institute for Market Economics.
"The near future will be a good time for the deposit market, especially since interest rates are growing and the situation among banks in Poland is relatively stable despite the global turmoil," he said.
Analizy Online's Publicewicz said that bonds were also a viable option, as the return was better than that of a bank deposit.
"As the saying goes, waiting for profit from a bank deposit is like waiting until retirement age for sex," he said.
Hope for the future
According to SGH's Szablewski, investments will continue, driven by hungry investors, although returns will be somewhat lower. Poland's economic fundamentals remain sound, which is an encouraging sign.
Szablewski said that the bourse would see a revival with the privatization of large state-owned companies. Indeed, the government's declarations that energy- and chemical-sector companies would be privatized via the WSE has raised considerable expectations. The first company from the energy sector, Enea, is to see its IPO this month.
"If the government's declarations are realized, this will lead to a new influx of investors," he said. A number of experts pointed out, however, that the lack of a detailed privatization schedule has dampened enthusiasm among already disheartened investors.
