Weekly comment MM Prime TFI - June 15, 2015
Last week was another unfortunate week for the Warsaw Stock Exchange. Although the largest companies index (WIG20) declined by only 0.3%, small and medium-sized companies dropped dramatically by 1.2% (mWIG40) and 2.3% (sWIG80). Small caps index broke the support level of 13 500 points. As a result, a broad WIG index lost 0.6% in value. The WIG20 followed global sentiment, the scale of the decline was similar to situation on Western Europe exchanges. Neighbouring DAX did not change its value, while the CAC40 fell by 0.4. The end of the week, especially Friday, was very poor for many markets, including Wall Street (declines of 1%). Looking at particular sectors on the WSE, mining was one of the worst performers with its leader - Bogdanka. Reduction of production, capital expenditures and cut in dividends did not encourage investors. As a result of those news shares of the Company dropped by as much as 23.2%. This privately-owned, well managed mine, has to deal with non-market competition in the form of a large supply of coal from subsidized by the State Kompania Węglowa.
The macro calendar is not very rich for this week. Greece will be filling up news feed this week. Initially, the information coming from the negotiation were not bad – there was a rapprochement of positions and mutual talks between Chancellor Merkel and Prime Minister Tsipras. However at the end of the week IMF withdrew from negotiations because of the little compromise position of Greece. Market rumoured that Germany was preparing for the worst-case scenario. Weekend talks, already without the representatives of the IMF, also ended in failure, and the European Commission determined the divergent opinions as significant. The next talks will take place within the Eurogroup (meeting of finance ministers of euro area countries), which will take place on Thursday. Although officials expressed hope to work out an agreement, it is expected for negotiations to drag on towards June 30, the date of repayment of liabilities to the IMF. Looking at the progress to date, it is difficult to be optimistic, but still rational move on the part of the Greeks would finally agree to a compromise. During the holidays further tranches of debt are due, this time to the ECB.
In addition to Greece, noteworthy were also good US data on retail sales. The market is looking more in the context of the FOMC decision and not the strength of the economy. Meanwhile, earlier this week we have pre-holiday FOMC meeting at which the interest will almost certainly not be changed. The most important on this meeting would be the rhetoric of J. Yellen and the latest macroeconomic forecasts. It will be the focal point of the week, but investors can not forget that the issue of Greece is still present.
Graph 1. WIG20 daily. Source: Stooq
After a strong decline in the WIG20 index, last week brought a slowdown in volatility. Eventually the index ended with a symbolic 0,3% decline. In the course of the week a return movement to a ruptured rising trend line was completed, but that's all bulls could accomplished. The technical situation favor the selling party and the scope of a decline can even reach support at 2,300 points. Only return above the uptrend would improve situation on the demand side. The volumes did not see the massive distribution, and therefore it does not appear that the risk of falls well below 2300 points are high.
Graph 2. Elektrotim daily. Source: Stooq
Last week Elektrotim shares went ex-date on the dividend. Stock performed well after divided was cut off, gaining 3.5% to establish a new local maximum at the 12.84 PLN (adjusted for dividends). The company is moving in a stable medium-term uptrend. Key support is at 11 PLN where the trendline is set. In theory, such a correction would be safe for the bulls, but in the short term breaking the 12.50 PLN level will negate the current buy signal. Investors need to be careful, because the oscillator RSI shows a bear divergence.
Authors: MM Prime TFI S.A. Investment Management Team
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