WSE suffers setback as economy falters

The Warsaw Stock Exchange (WSE) faltered for the second straight week as local economic uncertainty and a correction from short-term highs undermined what had been several weeks of steady growth.

"Now it is very difficult to predict which way the market is going to take - continuation of the downward trend or a rebound," said Marcin Materna, investment adviser at Dom Maklerski BIG-BG.

The blue chip WIG20 index dropped 1.7% to 1,258.57 points, the all-share WIG index was off 1.2% to 14,114.03 and the TechWIG index dipped 4.6% to 649.96 for the five-day period ending Thursday. Volume was down at zł. 1.02 billion ($248 million).

The recent decline is a technical correction of recent highs, Materna said, but also reflects domestic uncertainty.

"The local reason is the continuous problem with the budget," he said. "The plan to increase the budget deficit by zł. 3 billion ($731 million) this year wasn't what the market expected."

The government last week approved a second revision to the 2001 budget that upped deficit spending by zł. 3.8 billion ($927 million). With the change, the budget deficit climbed to 4.5% of gross domestic product (GDP), up from the first revision's 3.9% and the original 2.6%.

The fiscal maneuver more than offset the Monetary Policy Council's (RPP) decision to slash interest rates by 150 basis points last week. The move, the sixth cut of the year, brought the central bank's main interest rate to 11.5%, 7.5 percentage points lower than the beginning of the year.

Among the most active stocks, Elektrim suffered early in the week from rumors of pending bankruptcy, spurred in part by an ING Barings report. The troubled power and telecoms group lost 18% on Monday, but quickly regained ground when Poland's anti-monopoly authority said Krakowska Fabryka Kabli (KFK) could purchase Elektrim's 70.5% stake in Elektrim Kable, reversing an early decision. If consummated, the deal would allow Elektrim to raise ?80 million-?100 million toward a funding gap that could reach ?260 million by Dec. 15, and in the short term hit ?337 million, according to analysts.

The company, one of the WSE's blue chips but deeply troubled by financing and a loser in a corporate battle to control telecom assets earlier this year, is still likely to struggle, said Dalibor Vavruska, telecoms analyst with ING Barings in London.

"Whether it's going to work out or not, I'm giving it a 50-50 chance," he said. "What is important to stress is that this company is not that important any more. It does not hold a controlling stake in any important companies ... and its influence in any part of Polish industry is very low."

In September, France's Vivendi Universal wrested control of cell phone operator Polska Telefonia Cyfrowa (PTC) from Elektrim. Elektrim was rescued from bankruptcy in the deal, but lost a controlling stake in its prize possession as it tried to build a telecoms empire.

Elektrim's stock ended the week down 4% to zł. 15.50 per share and Elektrim Kable was up 1.9% to zł. 4.72.

The heaviest traded stock of the week was Telekomunikacja Polska (TPSA). The Treasury Ministry had planned to delay a secondary public offering of an additional 15% stake in the telecom concern until the end of 2002, but the government's advisory committee did not offer final approval last week, as scheduled.

Agnieszka Dłuska, with the Treasury Ministry's press office, said that the government's advisory committee, which has to approve delays in the state's sales of strategic holdings, would discuss the matter this week.

The ministry does not want to sell the additional stake due to TPSA's low share price. The former government had planned for the secondary offering to be completed before the end of this year. TPSA shares closed at zł. 15.65 last Thursday, down 4.3% for the week.

Michał Marczak, telecoms analyst at Dom Inwestycyjny BRE Banku, said that while it would be difficult for the government to sell shares now, the treasury also could have problems selling the stake next year due to further efforts to liberalize Poland's telecom market, which would continue to erode TPSA's market share.

-- Jeffrey Sparshott and Roseanne Gerin