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The Warsaw Voice » Business » January 21, 2009
WSE in 2008
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Time of Bears
January 21, 2009 By A.R.    
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Stock market investors in Warsaw did not have much reason to be happy last year. Much as other bourses in Europe and the world, the Warsaw Stock Exchange (WSE) was bearish through most of the year, its indices recording record declines.

The global financial crisis, which intensified with each month and was aggravated by growing problems faced by the world's largest economies, affected the prices of WSE-listed stocks. As a result, almost zl.650 billion in shareholder value vanished into thin air as both the WIG all-share index and the WIG-20 blue-chip index lost around 50 percent last year. It was by far the worst result ever recorded by the WSE. Previously the worst year for WSE investors was 1994 when the WIG lost 40 percent.

Those who invested in developer and bank shares were hit the hardest. Investors who bought Polnord stock a year ago have lost almost 80 percent of their initial capital by now. The same is true of LC Corp, a company that suspended the construction of Poland's tallest building, Sky Tower in Wrocław, after the crisis erupted. Investors who held stock in other developers probably want to forget 2008 as soon as possible as well. Their returns were affected by mortgage problems and low demand for homes. The WIG-Deweloperzy developers' index shed 73 percent over the year, the worst performance of all WSE subindices.

WSE-listed banks lost some 60-70 percent in the course of 2008, mainly in the second half of the year. PKO BP is the only bank that fared relatively well, losing "only" around 30 percent. TP SA, which plunged around 10 percent, turned out to be the best investment among the blue chips.

The WSE was one of the world's worst-performing stock markets last year, despite the fact that the Polish economy remained strong, though slowed gradually. The WIG shed 50 percent, while stock market indices in countries facing recession fared much better. A few days before the end of the year, London's FTSE was 34 percent down on the beginning of the year, and the Dow Jones was less than 36 percent lower than at the start of 2008.

This year does not look optimistic, either. Bullish trends and investors are unlikely to return to the WSE any time soon-especially as many individual players sustained losses on last year's volatile stock market and moved their money elsewhere. A lot of money has been transferred to bank deposits, which are regarded as a safer option at a time of turbulence on international financial markets.

"It seems 2009 will be quite nervous," says Mirosław Saj, an analyst at BM DnB Nord. "Corporate results for the fourth quarter will be important, but a lot will depend on the behavior of the largest investment and pension funds. One can see that their strategies are diverging. There are great differences in their stock investments. They will certainly be buying in a very selective manner."

The Polish stock market may be helped by falling interest rates, which should make stock a more attractive investment than bank deposits. At present, the Polish central bank's key interest rate runs at 5 percent, but analysts expect further cuts because inflation is unlikely to rise now that the economy is slowing and the prices of the raw materials-which have a major impact on inflation-are decreasing.

Despite the bearish trend, the WSE has been steadily strengthening its position in Central and Eastern Europe. In terms of capitalization, or the total value of listed companies, the WSE has already outperformed all other stock markets in Central-Eastern and South-Eastern Europe (CEE and SEE), as shown by recent data from the Federation of European Stock Exchanges (FESE).

At the end of September, the WSE's capitalization exceeded 105 billion euros and was 85 billion euros higher than that of the Vienna Stock Exchange. The difference between the two exchanges in terms of capitalization has steadily diminished over the past few years. At the end of 2005, the capitalization of the Vienna exchange was more than 27 billion euros higher than the capitalization of the WSE. By the beginning of 2008, the difference shrank to 12 billion euros. In July last year, the value of companies listed in Warsaw was 9 million euros higher than the value of those listed in Vienna. At the end of September, the WSE's capitalization was also higher than the capitalization of the Athens Exchange.

There are many signs that the delayed privatization of the WSE will finally take place in 2009. The Treasury ministry is completing work on a new privatization strategy for the exchange. The previous strategy had to be changed due to the financial crisis, which rules out a successful IPO for the WSE, according to the ministry.

The first signals suggesting that the WSE privatization agenda could be changed appeared in late November when officials and the media began to talk about the possible involvement of financial investors from Saudi Arabia. Treasury minister Aleksander Grad says he does not want to sell the exchange to investment funds alone. According to Grad, a detailed privatization program for the WSE will be ready by the end of January or early February at the latest.

Warsaw Stock Exchange in Figures
WIG end of year27,228.6455,648.54-51%
WIG20 end of year1,789.733,456.05-48%
Number of listed companies (end of year)3743517%
Number of new companies3381-59%
Capitalization of domestic companies (zl.million)215,516509,887-58%
Total capitalization (zl.million)485,7321,080,257-55%
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