WIRR falls back into investor favor
Market watchers' attention may be focused on the Warsaw Stock Exchange (WSE) WIG index's seemingly inevitable push to break through its all-time high of 20,760, but analysts last week said investors may also want to pay attention to the mild resurgence on the smaller parallel market's WIRR index.
While recent years have seen many companies jump ship from the WIRR to the main market, former speculation that the WIRR was dying a slow death now seem exaggerated. December and January saw a renewed interest in the WIRR, with smaller investors buying heavily and daily turnover soaring. So far this year, the volume of WIRR trading has doubled to tripled average 1999 levels.
"Small investors are coming back and once again the WIRR is very interesting for them," said Pawel Puchalski, an analyst at Dom Inwestycyjny BRE Banku.
The parallel market is comprised of companies with a smaller book value than those on the WIG index and is often seen as a stopgap for firms that want to cross over to the main market but which cannot yet fulfil its regulations. One of the largest deterrents to smaller companies listing on the WSE is that they must produce an audited balance sheet for the past three consecutive years.
Furthermore, many firms may never achieve the requisite zl. 65 million ($15.85 million) book value necessary to be quoted on the WIG index and are consigned to the WIRR for the foreseeable future. For these firms, whose book value still has to be at least zl. 22 million ($5.3 million), "it is better to be quoted on the parallel market than not to be quoted at all," Puchalski said.
Despite that, the WIRR's capitalization has remained relatively low. While the WIG index's market capitalization came to zl. 117 billion ($28.54 billion) at the end of 1999, that of the WIRR amounted to only zl. 2.9 billion ($707.3 million).
The parallel market has been left in the doldrums for many years now after hitting its all-time high in March 1994, when it reached the 6,500 mark. At that time, investors often saw much larger returns from listing on the WIRR than they did from WSE stocks, Puchalski said. That changed, however, when both indices crashed in April 1994, he said. Since then the parallel market has been tainted by its high risk level. As a result, the WIRR's levels have remained low, with the index since 1995 only reaching as high as 3,970 a number it hit in September 1997.
However, the WSE's recent market rally, and the accompanying market enthusiasm, has also rolled into the WIRR. In December, the WIG rose 12.48% on the month to finish the year at 18,083.6 points, while the WIRR soared 18.67% to close the century at 2,085 points. And while in recent years the index's daily turnover averaged zl. 4 million-zl. 8 million ($975,609-$1.95 million), since trading started this year the mean has been zl. 9.7 million ($2.37 million). On Jan. 12, it even hit zl. 18.9 million ($4.61 million), Puchalski said.
The irony of the current situation is that the WIRR's recent swell has been in part fueled by a company poised to leave the index. Over the years many firms have made the jump from the WIRR to the WIG, including billboard advertiser AMS, construction materials producers Atlantis and Cersanit, credit provider Best and builder Budimex Poznan, (which is now no longer on the WSE after having been purchased by Budimex).
The latest to move is IT company Comarch, whose share price has risen rapidly so far in 2000, and which will enter the main market after a proposed share issue later on this year, analysts said. Such a move is normally aimed at attracting foreign investors whose interest is hampered by the size and lack of liquidity of companies on the WIRR, said Pawel Zach, an analyst for Citibank (Poland).
Last week Comarch's share price soared 21.04% to close Friday at zl. 187. Last week overall the WIRR was up 5.9% finishing at 2,267.3. In addition to the upcoming issue, the firm's rapid rise was indicative of the current fever for IT stocks. Comarch's announcement that 15% of its revenue is coming from internet projects sparked further interest in the stock, said Michal Mierzwa, an analyst at Centrum Operacji Kapitalowych Banku Handlowego.
Much of the WIRR's recent rise in daily turnover can be attributed mainly to interest in Comarch, Zach said. But while the stock accounted for up to 40% of the parallel market's weekly turnover, around 40 less notable companies have experienced their shares changing hands, Puchalski said. "People are buying these shares and it's not one or two (stocks) that make a market," he said.
