Summary

Since the beginning of the year, we have noticed clearly improved sentiment on the WSE. While the beginning of the year was dominated by small and medium-sized companies, since the launch of the European version of quantitative easing, large companies were in domination. The WIG20 gained 5% in April, while mWIG40 went up by 3.5% and sWIG80 by only 2.3%. Comparison of the WSE performance versus it’s Western European peers looks even more interesting. In April the DAX noted a stronger correction move, losing 4.3% and the French CAC40 stabilized, inhibiting further growth.

There are several reasons for this situation. First of all, there is a large amount of capital on the market which is looking for investment opportunity. As soon as the DAX and the CAC40 grew by over 20% during the first months of this year, many investors realized that it would be hard to expected same growth pace in the future. A correction move is a natural thing, problems with Greece is only sort of a rationalization for profit taking. In fact, market believes that Greeks can still make friends with creditors, that can secure their future in Eurozone for next few months. On the other hand Greece bankruptcy is not an unreal scenario. Looking at euro, single currencies’ recent gains could hit export-oriented German companies. This is another theoretical reason for a correction. We did not fear recent appreciation of euro versus dollar because in our opinion there are still no strong arguments to reverse the downward trend on EURUSD. The data from the US economy, topped with a preliminary reading of GDP for the first quarter was bad, but there is not much change in FED’s rhetoric. Federal Reserve is still closely monitoring the data flow, indicating that the weaker first quarter could be largely due to the effect of a cold winter. Therefore, the crucial data would be GDP for the second quarter, including payrolls (to be released this week). The first increases in interest rates before the summer is rather unlikely, but an increase in the last quarter of 2015 is quite possible.

So far, no panic in seen on markets. Indeed, the correction in developed European stock exchanges may even extend, but we have not seen an outflow of capital from capital markets, but it’s relocation to emerging markets. Gains are noted in Warsaw, but also in major emerging markets like China, Brazil or Russia. The Wall Street follows its own course, slowly improving historical records. Pessimism of analysts is one of the drivers over there. Their consensus forecast is beaten even in a weak 1Q 2015. As long as there are no clear signals of rate hikes in the US we should not see a panic on stock exchanges.

Technical Analysis

Graph 1. WIG20 daily. Source: Stooq

Since October 2013 the WIG was moving in horizontal trend. Bulls finally have a chance to end it up. In April, the WIG rose by 4.4%, breaking the strong resistance level of 55 687 points, a maximum from September 2014. A wave of growth lasts from the beginning of the year, and a greater correction took place at about the mid-range of the movement. Additionally distance from the uptrend is now considerable. This prompts us to think about the risk of a correction, which could bear a large part of April's gains. However, if the index remains below the level of 55 687 points (now an important support) the bulls dominance in the medium term would be maintained.

Graph 2. DAX daily. Source: Stooq

In the month when the WIG index grew by 4.4%, the value of DAX index declined. Technically, this resulted in a short-term consequences, as a break out in a accelerated uptrend line. In the medium term, bulls are still in a dominance although the share price approached the next line of an upward trend. Therefore current levels should already been regarded as a key support. Below, there is even more important barrier of 11 000 points. In case of the break out, drop to the neighborhood of 10 000 points is possible. The growth in volumes is quite worrying but there are no clear sell signals yet.

Authors: MM Prime TFI S.A. Investment Management Team

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Summary

Since the beginning of the year, we have noticed clearly improved sentiment on the WSE. While the beginning of the year was dominated by small and medium-sized companies, since the launch of the European version of quantitative easing, large companies were in domination. The WIG20 gained 5% in April, while mWIG40 went up by 3.5% and sWIG80 by only 2.3%. Comparison of the WSE performance versus it’s Western European peers looks even more interesting. In April the DAX noted a stronger correction move, losing 4.3% and the French CAC40 stabilized, inhibiting further growth.

There are several reasons for this situation. First of all, there is a large amount of capital on the market which is looking for investment opportunity. As soon as the DAX and the CAC40 grew by over 20% during the first months of this year, many investors realized that it would be hard to expected same growth pace in the future. A correction move is a natural thing, problems with Greece is only sort of a rationalization for profit taking. In fact, market believes that Greeks can still make friends with creditors, that can secure their future in Eurozone for next few months. On the other hand Greece bankruptcy is not an unreal scenario. Looking at euro, single currencies’ recent gains could hit export-oriented German companies. This is another theoretical reason for a correction. We did not fear recent appreciation of euro versus dollar because in our opinion there are still no strong arguments to reverse the downward trend on EURUSD. The data from the US economy, topped with a preliminary reading of GDP for the first quarter was bad, but there is not much change in FED’s rhetoric. Federal Reserve  is still closely monitoring the data flow, indicating that the weaker first quarter could be largely due to the effect of a cold winter. Therefore, the crucial data would be GDP for the second quarter, including payrolls (to be released this week). The first increases in interest rates before the summer is rather unlikely, but an increase in the last quarter of 2015 is quite possible.

So far, no panic in seen on markets. Indeed, the correction in developed European stock exchanges may even extend, but we have not seen an outflow of capital from capital markets, but it’s relocation to emerging markets. Gains are noted in Warsaw, but also in major emerging markets like China, Brazil or Russia. The Wall Street follows its own course, slowly improving historical records. Pessimism of analysts is one of the drivers over there. Their consensus forecast is beaten even in a weak 1Q 2015. As long as there are no clear signals of rate hikes in the US we should not see a panic on stock exchanges.