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The Warsaw Voice » Business » October 8, 2008
Month in Review
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Black September
October 8, 2008 By Michal Jeziorski   
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On "Black Monday," Sept. 15, the Warsaw Stock Exchange's WIG20 blue-chip index plummeted to its lowest level since July last year.

n Even though the Warsaw Stock Exchange has been bearish for more than a year now, investors fear that the latest global financial turmoil may mean more trouble for the trading floor here.

In the wake of the U.S. financial meltdown, stock market indices in Germany, Britain, France and other countries in Europe have been falling consistently. The German government, working in conjunction with a group of German banks, has granted billions of euros in guarantees to Hypo Real Estate, a Munich-based mortgage bank. The Bradford & Bingley mortgage bank of Britain, the Fortis bank of Belgium, and the Glitnir bank of Iceland have all been nationalized. These developments underlined that the financial crisis has already expanded beyond the United States and is spreading far and wide.

Stock prices on the WSE have been dropping not only because of the withdrawal of domestic investors, but also due to the flight of foreign investors from emerging markets.

In September, the number of financial instruments available on the Warsaw trading floor increased, with new futures contracts tied to the British pound and the Swiss franc traded for the first time. Previously only futures contracts tied to the U.S. dollar and the euro were available. In September, the number of transactions involving futures contracts was over three times larger than throughout last year. On Sept. 12 alone, more than 1,900 futures contracts were traded, almost seven times as many as in the whole month of September last year. This shows that when the stock market is bearish currency futures may offer an opportunity for investors to profit.

Since it was established 18 years ago, the Warsaw Stock Exchange has seen four big slumps. None of them lasted longer than two years. The latest started over a year ago. The WIG all-share index has lost 38 percent over the past 12 months and 46 percent since the peak of the last bullish trend in July last year. Savings in investment and pension funds have shrunk by zl.50 billion since July last year.

Assuming that the current bearish trend is nearing an end it may be reasonable to start looking for companies whose stock is worth buying. But investors should remember the need to diversify their investments. They should not invest all their assets in a single company, sector or fund type. They should also remember that history does not always repeat itself. Those who want to stay on the safe side should choose high-interest deposits or safe instruments such as capital guarantee, money market or debt funds. Also recommended are Treasury bonds.
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