WSE posts moderate recovery after RPP cuts interest rates
The Warsaw Stock Exchange (WSE) rebounded slightly last week as investors enjoyed a correction from long-term lows after the Monetary Policy Council (RPP) cut interests rates by one percentage point. However, trade remained light and most eyes are on the September elections and the country's ongoing budget problems, analysts said.
"I think there are chances this recovery will continue but it is related to elections and (the opposition Democratic Left Alliance) SLD's program, and whether they will tighten fiscal policy," said Tomasz Bardzilowski, country analyst for Credit Suisse First Boston.
For the week ending Thursday, the WSE's blue chip WIG20 index climbed 2.29% to 1,111.98 and the all-share WIG index jumped 2.43% to 12,474.67, but the TechWIG index could not hold even and ended at 606.33. Volume was at summer holiday level, with the week's turnover at zl. 547 million ($130.3 million).
The WSE's sudden pep was not unexpected, but how long it will last is open to debate.
"The market had been falling like a stone for quite a while, so we can see room for some correction," said Tadeusz Kozaczynski, head of equity research for CA IB Securities. "But we don't see any clear drivers. Everything is up to the macro picture in Poland."
The macroeconomic picture will remain uncertain as long as the government and opposition do not have a clear revenue, expense and borrowing plan. The government is expected to continue debating its budget blueprint this week, though voters are expected to boot out the Solidarity Election Action (AWS)-led coalition and bring the SLD to power. But so far the SLD has given only general indications of its program.
If the new government tightens fiscal policy that will leave more room for easing monetary policy, Bardzilowski said. Despite the cut in interest rates to 14.5%, the RPP cautioned that budget constraints could limit future moves.
The economy's main indicators have been mixed. Consumer prices are up 2.8% from January to July, compared with 6.2% during the same period last year. Food prices in the first half of August, released last week by the Central Statistical Office (GUS), indicate that inflation should remain in check. Meanwhile, industrial output has been soft through July it was up only 1.4% for the year, compared with 9.8% in 2000. And the producer price index also indicates slow growth. Exports remained healthy, up 16.7% in dollar terms through the first half of the year, according to GUS figures released last week. Unemployment hit 15.9% in July, up slightly from the previous month and the highest level since February 1995.
"There are no clear indications that the economy has hit the bottom but we are close, and the next quarter should bring some kind of shallow recovery," Bardzilowski said.
On the corporate front, the WSE's blue chips remained the heaviest-traded stocks during the week, with Telekomunakacja Polska (TPSA), Bank Pekao, Polski Koncern Naftowy Orlen (PKN Orlen), KGHM Polska Miedz and Elektrim making up more than half of all volume.
Two weeks ago Bank Pekao, the WSE's largest-listed bank, was hit by a sell-off as international investors left the Polish market. Last week, the lower price was a bargain and the bank made a limited recovery, with the share price rising 1.4% to zl. 65.
"Pekao is our top pick," Bardzilowski said. "The last correction provided a good opportunity to buy into the stock."
Software integrator Prokom last week was walloped when it announced plans for a convertible bond issue to restructure short-term financing. The bonds, if approved at a shareholders meeting Sept. 17, would be convertible to 1.4 million shares. The firm is also negotiating with TPSA to sell a controlling stake in Web portal Wirtualna Polska. The share price was also affected by rumors that the talks had stalled, analysts said.
For the week, Prokom lost 9.05% to zl. 87.40 per share.
