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Prospects for equity market in Poland in 2012 according to investment funds managers
2012 is to be better than year prior – both for equity market and investment funds
The predominant view among fund managers is that the year 2012 will be more favorable for the Polish equities than 2011. Given the last year’s declines of major indices of the WSE as well as poor returns on investment funds, it would seem a better performance this year should not be difficult. In the previous year, the index WIG20 fell 21.9%, while the average rate of return of Poland’s equity investment funds amounted to minus 22.6%, according to the business daily Parkiet (January 28 issue). The January 11 report of the financial researcher Analizy Online and the Chamber of Funds and Asset Managers (IZFiA), in turn, reads: “The last year was relatively weak for investment funds sector. Over its twelve months, the pooled assets under management of domestic investment funds (TFIs) fell by nearly PLN 6 bln or 4.8% [to the level of PLN 114.4 bln at the end of December]. It’s the fourth time in the nearly 20-year history of our investment funds sector that their assets shrunk”.
This year should be better. “2012 will probably be a good period for investing,” chairman of investment fund Quercus TFI Sebastian Buczek said at his mid-December meeting with journalists, underscoring that Poland and Turkey are his funds’ 2012 “top picks”.
Real effective exchange rate percentage deviation from the long-term trend for selected emerging markets’ currencies
source: Credit Suisse, report EMEAA Equity Strategy from January 11, 2012
Stock market gains are to translate into an increase in the worth of assets under management of domestic investment funds. “If there are no rapid moves on markets, one may quite realistically expect an increase of Polish TFIs’ assets under management to PLN 125-130 bln at the end of 2012 in comparison to some PLN 115 bln at the end of 2011, according to preliminary estimates,” chairman of the Chamber of Funds and Asset Managers (IZFiA) Marcin Dyl said in his conversation with PAP published on January 10.
Acceleration expected only in second half of year
Quercus TFI in its base scenario assumes that even though the entire year 2012 is to be closed with the stock market gains, some declines may be recorded at the beginning of the year. “At the beginning of the year the markets might still want to test politicians, so it is better to refrain from investments for a while. A yet another wave of declines cannot be excluded in the coming months, but the entire year may be ended in the black" Buczek said.
In the light of these expectations, the beginning of the year looks surprisingly good: at the end of January both the index WIG20 and WIG are at levels nearly 6% higher than at the very beginning of the month. Director of department of investment portfolios management at DM BDM brokerage Cezary Cerowski, however, makes a reservation that the January pace of growth can not possibly be maintained “It is difficult … to speak about a beginning of a bull market …. The market is so volatile that I would be wary of increasing equity exposure at present,” Cerowski argues in a comment published by Parkiet on January 28. “The situation should crystallize once the EU leaders make decisions enabling the eurozone to get out of the crisis,” he added, forecasting that Warsaw indices would rise by some 20% in the entire year. A similar view is represented by Altus TFI chairman Piotr Osiecki. “For the time being the consensus is that the first half of the year will be more difficult for markets. It is not the right time for buying shares,” Osiecki told PAP on January 11.
And still, as remarked by Opera TFI investment director Krzysztof Stępień in his market commentary published in the January 28 issue of Parkiet, in the event of a continuation of the January stock market gains and WIG index exceeding the level of 40.8k pts in medium term, “… there would be a significant decrease in the probability of the scenario assumed by a large part of market participants, saying that the first half of 2012 is to be weaker than the second one”.
Polish companies’ solid fundamentals and low valuation seen as growth drivers
What is the rationale behind the fund managers’ expectations of the WSE growths? Firstly, the fundamental strength of both Polish economy and of WSE-listed companies, secondly, the companies’ low, attractive valuations. Precisely these factors are pointed at by the managers of Pioneer Pekao Investments in the materials from Pioneer’s New Year press breakfast passed on to PAP. “Fundamental valuations of Polish companies are exceptionally low in comparison to both global emerging markets and the companies’ valuations record,” while “at present, the fundamentals of the Polish economy are much stronger than the ones for the remaining EU countries,” Pioneer Pekao’s experts underscore. However, they make a reservation that Polish equities “need greater liquidity on financial markets and good prospects for the economic growth in the EU to come close to their fair value.” A message to the same effect is sent by DM BDM’s Cerowski, who believes that “we are dealing with a crisis of confidence and not of fundamentals.” “Companies keep showing decent results …, eventually, the market will perform its function and start to price in companies’ fundamentals,” the manager adds.
The ratio between external funding and assets (left) and between external funding and GDP (right) for Poland, the Czech Republic and Hungary
source: Credit Suisse, report EMEAA Equity Strategy from January 11, 2012
Fund managers complement the above list of stimuli of Polish equity gains with a number of others: Quercus TFI’s Buczek mentions the positive influence of low interest rates and inflation, while Credit Suisse, in its report EMEAA Equity Strategy dated January 11 comparing equity markets in Poland, Hungary and the Czech Republic, also draws attention to the fundamentally unjustified discount in the real exchange rate of the Polish zloty and Poland’s banking system being foreign owned to a lesser extent than in the case of the two other CEE countries, a circumstance that should prevent the country’s loan sales from being particularly constrained.
Source - Polish Press Agency, Economic Service
Modification date : 01.02.2012
Author : Investor Relations Department
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