WEEKLY COMMENT MM PRIME TFI S.A. - SEPTEMBER 15, 2014
After a busy first week of September, when the unexpected decision of the ECB to cut interest rates electrified investors, the second week of the month did not bring any significant economic data. From the perspective of the last few weeks no signs of a panic are observed on the major global markets. Weaker performance is only a technical correction. The S&P 500 returned slightly below 2000 points, ending a week with price reduction of 1.1%. The European markets performed similarly. The DAX, the FTSE and the CAC40 lost a little over 1%. Uncertainty in the global markets can be explained by the upcoming FOMC meeting. Certainly the interest rates will not be changed, while QE3 will be reduced, and completely finished by October. The important question is whether a key phrase of maintaining low interest rates for a "considerable period of time" is kept in the statement after the meeting. On one hand, great results of the American economy support hawkish rhetoric, on the other, strong dollar and possible concerns about rapid withdrawal of this phrase will result in remaining the at least until October. Under this assumption, the FOMC meeting will remove uncertainty from the market and will be a catalyst for further growth.
The Warsaw Stock Exchange finished last week also below the starting line. Explanation of this poor performance can be found in Ukraine, where fights are still ongoing. Foreign capital is leaving both stock and bond markets. The WIG20 fell by 1.73%, while the WIG50 and WIG250 increased, quite significantly, by 0.7% and 2.2%. Trading volumes were not somehow significant. If global sentiment does not complicate the situation, the demand should also return to large companies. The WIG20 finished at the important support of 2500 points. This week, the CSO will publish the industrial production growth and CPI inflation from August. Deflation and the dynamics of industrial production are two arguments for the MPC's interest rate cut in October. Such decision is obviously conducive to increases in stock prices. That is why we can say that the weaker data from the Polish economy, the better for the valuation of companies.
Commodity companies on the WSE should be approached carefully. While PKN and Lotos are already heavily discounted, the correction has only started on KGHM. The problem is primarily caused by the condition of the copper market. Last week it was under pressure from sellers. This picture does not look any better now due to weaker Chinese data on industrial production released over the weekend. A strong readings from the real estate market in the USA could support valuation. However, breaking below 130 PLN level by KGHM should be treated as a first warning to the upward trend for the company.
Graph 1. WIG20 daily. Source: Stooq
The WIG20 generated a buy signal, that was negated at the beginning of the week. For now, it still does not prove the completion of growth wave. It is possible that the attack on the area of 2600 pts have only been postponed in time. Correction stopped at the level of 2500 pts. The 2480-2500 points zone is considered an important support zone. Breaking that level will result in potentially greater sell-off, towards 2400 points. As we have no clear sale signals at the moment we can stay moderately optimistic about the perspective of the WIG20 this week.
Graph 2. Forte daily. Source: Stooq
Forte shares are in a stable, long-term growth trend. Last week shares confirmed this in an impressive manner, gaining more than 10% at one of the sessions. This ends a several months of a consolidation and gives credence to a buy signal. This is confirmed by an increasing volumes at the upward surge. The company is growing, but a very sharp spike in price should be noted (+ 17.8% in the week), which results in the RSI oscillator to become strongly overbought. Therefore, the risk of a few percent correction is growing. The strength of the trend suggest to regard this potential move as an opportunity to buy. Breaking the barrier of 50 PLN would be a signal that the company's technical situation deteriorates.
Authors: MM Prime TFI S.A. Investment Management Team
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