Yielding to no-one
As the WSE closed before the long weekend, the key index having gone up 13% this month, analysts pointed out that the upward shift may be attributed to information confirming Poland's EU accession as planned in 2004. According to analysts, the growing hopes that the domestic economy has bottomed out are responsible for the upward shift.
Yet, some market analysts have raised questions that the lack of investment alternatives on the local exchange drives most investors to put their funds into principal stocks. Currently, only three companies have a 40% stake in the WIG20 index, namely TPSA, Bank Pekao and PKN Orlen. With only three major investment options, the stocks on the WSE continue to defy gravity.
"Prices of the stocks on the WSE are overvalued," said Sławomir Dębowski, an analyst at Bank Handlowy. "The Warsaw values exceed those on most western stock exchanges."
Although some analysts believe the overvaluation can be accepted in the short term, in the long term, because of the few options, any single event could cause the WSE to fall harder than ever before. At the same time analysts hesitate to predict a doomsday scenario for the WSE, saying that many factors need to be at play to cause a full-scale crash.
"In the short term this tendency is acceptable, but in the long term we will have to return to more rational share values," Dębowski said. "Right now the investors are waiting for the third quarter results. If they will be in line with everyone's expectations, the upward trend may continue."
Dębowski dismissed the possibility of a major market crash caused by internal factors.
"Elektrim used to be the pride and joy of WIG20, and then it fell from zł. 72 to zł. 1 per share," he said. "The share of the company in the WSE index fell to less than 1%, but the market somehow survived. It seems that the worst threat to the WSE does not come from within but from foreign markets. I'm afraid that the economic situation in Western Europe can soon begin to replicate the Japanese scenario, where for the last 13 years there has been no economic growth."
Other analysts were much more optimistic about the future of the exchange. Marcin Materna, an analyst at BIG Bank Gdański, opposed the view that the principal stocks on the bourse are overvalued.
"The WSE moves at a different pace than other European bourses," he said. "In the long term, we should expect higher growth here."
Józef Rympała, an analyst at the Warsaw Investment Group, shares the view and predicts an even more dynamic pickup as the date of Poland's EU accession approaches.
"I tie the value of shares with the state of the economy, and it looks as though it may actually be picking up," he said.
"The history of countries joining the EU, such as Greece and Portugal, shows that with the moment of accession they experienced a major market pickup; the same could very well happen here," said Rympała.
Analysts have also pointed out the shortage of stocks as potentially threatening to the exchange's stability.
"Many investors are stocking up, mostly on bank shares, hoping to cash in as we join the EU," Dębowski said. "The worst case scenario is that when we join the union and everyone realises that our bank shares are overvalued, they will sell. If something were to happen on the WSE, the pension funds, which buy up all the stocks, would be left with a lot of overvalued papers."
The shortage of stocks on the WSE has not failed to escape the attention of Samoobrona leader Andrzej Lepper, who criticised the government's decision to sell Warsaw power distributor Stoen to German utility RWE in favour of a flotation on the WSE.
"If all that mattered was privatisation and budget revenues, Stoen should have found itself on the WSE," Lepper told the Sejm. "Its shares would probably have been bought up by pension funds, which are currently suffocating from a surplus of funds."
