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20-08-2014
Weekly comment MM Prime TFI S.A. - August 18, 2014
Summary
Although it had only four business days, last week was very exciting for polish investors. Macro data readings were poor. The euro zone industrial production for June was disappointing. On the other hand, it was already heavily historical reading. Weak reading of ZEW index was not treated as a significant variable, as it reflects unstable moods of institutional investors. The fact that over the weekend there was no significant escalation of the conflict between Russia and Ukraine should be considered as the main reason for growth in the stock markets. In addition, a weaker data from the U.S. is also interpreted in favor of the further delays in interest rate hikes by the Fed. This was the main factor of a good week for the stock markets. The DAX rose by 0.9%, the CAC40 by 0.6%. The London’s FTSE250 was up by 2.8% due to the relatively dovish inflation report published by the Bank of England. Moods in U.S. were also positive, with the S&P500 gain of 1.2%.
The Warsaw Stock Exchange was also a good performer, beside the fact that the breadth of the market leaves a lot to be desired. Best performing large and liquid companies were grouped in the index WIG 20, which grew by 4.3%. The WIG30 index increased slightly less, up by 4.2%. Medium and small companies clearly diverged from the large ones. The WIG50 increased by 2.4% and the WIG250 only by 1.1%. Turnover also showed no clear upward trend. It is still hard to be optimistic about the small and medium-sized companies but certainly if the WIG20 manage to break the barrier of 2400 points, it would be a positive signal for the WIG50 and the WIG250. Components of these indices are already attractively valued.
The question is whether and what are the chances of permanent break of 2400 points on the WIG20? Many will depend on the beginning of the current week and market response to reports from Ukraine about rearming of separatists by the Russians. Undoubtedly, the conflict is still tightening up and it is hard to predict how big is the risk of regular war. On the other hand, market are getting used to this dragging conflict which is already priced in. The fact of the absence of further escalations is kind of a relief. Therefore, it is worth to pay attention to macro data. For WSE particularly important should be GUS data of industrial production in July, which will be published on Wednesday. Globally, it is worth a while to focus on the publication of writings from the last FOMC meeting (Wednesday) and PMI indices for the industrial sector and services in the euro area countries (Thursday). As a threat we consider current geopolitical and economic condition of Europe. Despite this we see good chances of the WIG20 to generate a buy signal with a range of 2485 points.
Technical Analysis
Graph 1. WIG20 daily. Source: Stooq
Once again, it turned out that the level of 2300 pts is a very strong support level. This year it was already tested 5 times and this strengthens its position. Initially, turnover showed a lack of demand, but as far as sentiment improved on the global market the Polish blue chips were given an injection of demand, which likely came from foreign investors. The WIG20 came to a crucial moment now. The 2400-2415 zone is a strong resistance point. The beginning of the week will give an answer if the index will remain in the range of 2300- 2415, or a new buy signal is generated with a range of 2485 points.
Graph 2. PKO BP daily Source: Stooq
We have picked PKO BP as our ‘stock of the week’ Shares of the biggest polish bank gained 5% over the week. Even though the increase was not massive, it significantly improved technical situation. In addition increased turnover was noticed on Thursday’s session. The company is still in a downward trend, however breaking resistance at 37 PLN is a signal that demand is present. Strong resistance zone is 39- 39,20 PLN. In the present situation is worth watching, if we can close any of the sessions of the week above the aforementioned zone. That would be a strong buy signal and the next important resistance levels are at 41.80, 43 and 44 PLN. Negation of the continuing growth scenario would be a drop below support at 37 PLN.
Authors: MM Prime TFI S.A. Investment Management Team
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