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Yesterday, the WIG20 lost almost 1 percent, the WIG fell by 0.7 percent, and the mWIG40 moved back by 0.1 percent. The indices, which include large companies, did the most harm: CD Projekt with a drop of 7.2 percent, Asseco discounted by 5.2 percent. and Allegro, which after a loss of 6.7 percent. it came close to the historic low of November 12.
The stock market shortness of breath in Poland was probably influenced by the interest rate hikes made in October and November by the NBP and another such move, which is to take place in December. Stock market investors around the world react negatively to the cyclical tightening of monetary policy.
According to many analysts, emerging market exchanges – including the Polish WSE – are currently victims of the strong dollar. The US currency is appreciating as investors expect the Fed to raise interest rates faster than the European Central Bank, although it will probably do so only in the middle of next year.
At the beginning of November, analyst Piotr Kuczyński wrote in a commentary for iWealth that on the WIG20 chart the first support is around 2,363 points, and a fall below this level may be the beginning of a further serious regression. After the Wednesday session, we were well below this critical value (2,239 points).
Analysts of the BM BNP Paribas say that from a technical point of view, the first support for the WIG20 index is now the level of 2,200 points. After breaking it, sellers would try to return to around 2,100 points, i.e. the local extremes from January this year. On the other hand, a fall below this level would mean a shift to a downward trend.
Many experts believe that in the case of the broad WIG index, the key factor may be the level of 68,000 points (on Wednesday it dropped to 69,124). In July this year, a peak of 68,148 points was formed and this level may become a magnet for the ongoing correction. The more so that the long-term support resulting from the 2018 boom peaks also runs around 68,000 points. In the case of mWIG40, experts in technical analysis indicate the first important support at the level of 5,100 points, i.e. around the extreme from the beginning of 2018. The index ended Wednesday’s session at 5,421 points.
The last days on the Warsaw Stock Exchange confirmed the old thesis that on the WSE “there is no boom without banks”. Yesterday, the WIG-Banks index went up by 0.5%, but previously it fell regularly starting from 5 November. Probably many investors realized profits. It was possible to earn a decent profit on the companies in this industry. From the beginning of January 2021, WIG-Banki gained 90%, while WIG increased by 20% at the same time.
Analysts emphasize that the November sell-off of banks was not caused by the financial results for the third quarter of 2021, as they were very good. They should be even better in the near future, as banks will benefit from the latest interest rate hikes.
The situation of some Polish companies is complicated by the decision of the foreign ministers of the European Union countries, who have adopted new sanctions against Belarus. The LPP clothing company has 10 stores in this country. Since the beginning of the year, the company’s shares have increased by more than 80 percent, but since mid-November, LPP has been undergoing a dynamic correction.
The construction company Unibep, based in Bielsk Podlaski, carries out many projects in Belarus. The company has built, among other things, the four-star hotel “Victoria” in Minsk. Unibep has increased by almost 30 percent since the beginning of the year, but this month it lost a significant part of this surplus.
Some companies are likely to fall victim to the government’s anti-inflationary shield. This is especially true of Orlen and Lotos, for which a statutory margin cut is being prepared. Lotos went up by more than 3 percent yesterday, but ended several previous sessions with a big negative. In turn, PKN Orlen has been regularly cheaper since mid-October.
Another problem may be the pandemic situation in Europe, which is becoming so dangerous that other countries are announcing the introduction of lockdowns. Austria decided to take such a step, and the outgoing German Chancellor Angela Merkel is also a supporter of the national lockdown. However, the new ruling coalition in Berlin rejected her motion to “shut down the economy”.
Lockdowns can be dangerous for Polish companies with stores abroad, such as CCC and the already mentioned LPP. The price of CCC went up by 3.5% yesterday, but it took place after several weeks of a serious sell-off.
Morgan Stanley analysts believe that emerging stock markets (including the WSE) and Wall Street are currently less attractive than Western European and Japanese markets. Equities in the Eurozone and the Land of the Rising Sun have “more reasonable valuations” and in addition there are fewer risks from legislation and higher taxes.
Morgan Stanley experts predict that the S & P500 will drop from the current 4,700 to 4,400 points. In their view, this will happen despite the fact that the Fed will hold off on raising interest rates and ultimately will not raise them until early 2023. This will be the consequence of the natural fall in inflation in developed markets that will occur in 2022 due to the normalization of supply chains.
Many other analysts also believe that monetary policy in the US will not be tightened too quickly. They point to President Joe Biden’s decision to retain Jerome Powell as Fed chairman and to elect Lael Barinard as his deputy. Both Powell and Brainard are “doves” attached to low interest rates.