Monthly market commentary - February 2015

Summary of February

The small-sized companies’ bull market was observable on Warsaw Stock Exchange in February, as we can see on the charts of individual indexes. Best-performing were companies from the sWIG80. Small caps gained almost 6% last month, making up some of the losses from 2014. In this case, the growth catalysts can be considered as a recovery in the economy and low interest rates. The Monetary Policy Council kept the reference rate at its lowest ever level of 2% in February. This decision reflected the consensus of the market, assuming a reduction in March, when the NBP’s inflation projection with the prospect of prolonged deflation will also be an argument of dovish side. Medium-sized companies with 3.4% growth were performing slightly worse and blue chips were traditionally the worst. The rise of just 1.1% was associated with being under pressure from the banking sector. Companies with a significant share in the WIG20 have not abreacted problems associated with a significant loans portfolio in Swiss francs yet. In this case, the hope would be further strengthening of the zloty against the Swiss franc. We are currently seeing stabilization of the CHF/PLN volatility in the vicinity of 3.90. Warsaw indicies growth could also be supported by the placement of surplus liquidity from developed countries on the Warsaw Stock Exchange.

Traditionally the developed markets have performed better than Warsaw stock exchange. The German DAX grew up by 6.6% in February and the French CAC40’s increase was similar to the rise in January. The largest increases among the world's stock markets recorded the Russian RTS and the MICEX. Slovak and Ukrainian indexes have performed slightly worse. The Nikkei 225 broke significant resistance from 2007. The S&P500 also performed well, with 5.5% increase. The bull market on Wall Street was supported by more dovish than expected notes from the minutes of the FOMC. The intention to keep interest rates low for a considerable period of time has been confirmed. The attention of members was also focused on mentioned "patience in increasing interest rate" sentence and the current impossibility of resignation from it. Better than expected were relevant data from the US labor market. With the forecast of 234 000, the change in nonfarm employment amounted to 257 000. European markets reacted favorably to one-off events. For example the DAX was rising after the the information about the ceasefire and withdrawal of heavy artillery in Ukraine, although it did not take place in reality. Investors' risk aversion decreased after the news about the approval of the Greek aid program extension for four months, providing appropriate reforms. Confirmation in practice still remains questionable and hope for the March growth of European indices would be the anticipated launch of QE program.

Technical analysis

Graph 1. WIG20 daily. Source: Stooq

The long-term broad market index horizontal trend with the support at 48 765 points and the resistance at 55 687 points is the bane of the Warsaw Stock Exchange for more than half a year. Breaking the significant resistance at 52 585 points in the middle of the month was unimportant. Last days, the index returned to the level previously defeated and will fight for defending it in March. Rebound from the support will bring move at least to 54 031 points. Trading below this barrier, in turn, will mean possible testing the support at 49 931 points.

Graph 2. DAX daily. Source: Stooq

Comparing to the previous month, the technical situation on the German DAX has not changed much. The index is constantly looking for new records. The index exceeded the level of 11 000 points with minimal adjustment in the days prior late February. Thus, the path to further growth seems to be open, and the catalyst would be a launch of a European asset-purchase program. On the other hand, the technical signals to the growth recovery are coming from the RSI and MACD indicators.

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

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