The sell-off on the WSE does not subside and instead of the expected rebound, we have a continuation of the declines of the main indices, of which WIG20 was the hardest hit. Analysts provide possible reasons for the sell-off on the domestic stock exchange.
photo by Krystian Maj / / FORUM
Although the first minutes of the session on Wednesday gave hope that supply had let up and demand would try to realize a rebound on WIG20, the next hours of trading forced us to throw this scenario into the bin. The sell-off on the domestic floor is continuing, and investors and analysts are looking for explanations for the decisive change in mood.
Around 9:30 on Wednesday, WIG20 once again found itself above the level of 2,500 points, growing by around 0.8 percent. From that moment on, however, the blue-chip index began to fall like a stone in water, setting new monthly lows.
After 1:20 p.m., WIG20 reached the level of 2,426.37 points, down by over 2.23 percent. This was over 3 percent from the daily maximum. A day earlier, WIG20 fell by 3.27 percent in its worst session in nearly 2 years. At the end of Wednesday’s session, the scale of the sell-off decreased and WIG20 ultimately fell by 1.26 percent..
Possible reasons for the sell-off?
There were various comments on the market trying to find a probable explanation for the current weakness of the domestic market. Among those that wisely suggested similar market behavior to Tuesday was the story of ABB Allegro, which has already led to similar strong drops in WIG20 several times. However, there was no announcement about ABB. Others talked about the effect of the weekend events in the US and Donald Trump’s increased chances of winning the November presidential election. We asked market experts what they think is the most probable explanation.
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Michał Krajczewski – BM BNP Paribas
“I would most likely link the declines in WIG20 to the return of a higher premium for political risk for domestic assets, which is due to the growing chances of Donald Trump winning the US presidential election. JD Vance was nominated as the vice-presidential candidate – investors could have paid attention to his statements regarding the need to end military aid for Ukraine” – comments Michał Krajczewski, head of the investment advisory team at BM BNP Paribas BP.
“Greater uncertainty regarding the situation beyond our eastern border may therefore encourage foreign investors to “preventively” withdraw capital and realize profits on our market,” he adds.
Sebastian Buczek – Quercus TFI
“We have been repeating for many months that the main risk factor for Polish assets remains the war in Ukraine. Investors have somewhat “got used” to this risk, but the approaching presidential elections in the United States and the recent assassination attempt on D. Trump, increasing his chances of victory, reminded us that, unfortunately, Russian aggression is still ongoing behind our eastern border – Sebstaian Buczek, president, co-founder and shareholder of Quercus TFI, agrees
“Investors have begun to fear that both D. Trump himself and the possible vice president – JD Vance, will not support Ukraine as strongly as President J. Biden, focusing more on China. This way of thinking may lead to the conclusion that the United States and NATO will lose the Ukrainian-Russian war, which in the long run may lead to the destabilization of the situation in our part of Europe,” explains the president of Quercus.
XTB Brokerage House
“Investors are concerned about the risk of reduced US involvement in the conflict in Ukraine and even pressure for a forced ceasefire if Trump wins the November elections. This could negatively impact Poland as a border country. Pricing geographic risk is very important for the Polish financial market, which we have already seen several times in recent years during key events in Ukraine. It should be remembered that the market reaction may also be amplified by low liquidity during the summer holidays” – Analysts from DM XTB wrote in a commentary on the market situation.
Piotr Kuczynski – DI Xelion
He looks at it differently Piotr Kuczyński from Xelion Investment Housewhich raises the issue of capital turnover and preemptive profit realization in Warsaw.
“It’s true that Vance is against helping Ukraine, but that doesn’t mean that Russian tanks will soon be moving towards Warsaw. In my opinion, there is no possibility that this will lead to the flight of some foreign capital from Poland,” Kuczyński comments.
“I believe that the most likely trend is a rotation from the largest companies, the engines of the bull market, to small companies, which is visible in the US. The Russell 2000, an index of small companies, has been dormant since the beginning of the year, but since July 9 it has gained 11.4% in 6 sessions. Some foreign investors have treated this as a “junk wave”, something that often precedes a large correction, and have decided to take some of their profits in Warsaw,” the analyst explains his position.
“After all, WIG20 has gained nearly 100% at its peak since October 2022, and SWIG80 140%. If a correction on the core markets was assumed, supply in Warsaw simply outpaced it,” he added.
“Donald Trump talks about Taiwan paying for defense, which hits TSMC (the manufacturer of the best integrated circuits) and ASML (the European manufacturer of equipment for TSMC). There is also Biden’s threat – tightening restrictions on imports of integrated circuits by China. Hence the discounting of contracts in the US, which also hurts the WSE,” explains Piotr Kuczyński.
Jerzy Nikorowski – BM BNP Paribas
In turn, he talks about the whole range of factors that may be responsible for the price reduction. Jerzy Nikorowski, director of the Brokerage House of BNP Paribas Bank“There are several reasons for a markdown. The market is currently well synchronized with macro readings affecting the level of inflation in the United States and the euro zone, which determine the path of interest rates,” the head of BM BNP Paribas begins to enumerate.
“The latest data on strong retail consumption readings in the US indicate that prices will remain elevated in the longer term, which postpones the discussion on rate cuts and is perceived negatively by the market. Another significant element is the growing risk of a new political deal overseas. This risk particularly affects the deterioration of the geopolitical position in our part of Europe,” the expert comments.
“On the domestic market, especially within WIG20, the market has been growing continuously for several weeks, which motivates some investors to take profits. In the medium and long term, however, we expect the upward trend to continue on the Polish stock market,” he added.
Sobieslaw Kozlowski – Noble Securities
“As usual in the capital market, several narratives influence investor behavior” – summed up Sobiesław Kozłowski, director of the analysis and consulting department at Noble Securities.
“The growing chances of Donald Trump winning the presidential election are rapidly pushing investors to take into account the demands of Donald Trump and his vice president. Tuesday’s statement about Taiwan’s need to pay for the security umbrella provided by the US is a catalyst for realizing profits on technology companies,” describes Kozłowski.
“Another narrative is the over 100% probability of a September cut in the reference rate by the Fed and the start of a cut cycle, which supports sentiment towards US Treasury bonds, but also dramatically improves sentiment towards companies that are beneficiaries of the lower cost of money, including in particular small companies from the US (Russell2000), but also industrial companies, which indirectly encourages taking profits on emerging markets and redirecting capital to the US,” enumerates an expert from Noble Securities.
“Ultimately, the unsuccessful exit of WIG20 above 2600 points or WIG-Banks above 14 thousand points is a trading argument for the activation of the supply side, which is confirmed by the course of Tuesday’s and Wednesday’s sessions as a result of the global increase in risk aversion, especially towards the country neighboring Ukraine, for which US aid may be limited after Trump’s election victory. Perhaps investors are discounting risk factors too dynamically, which is clearly visible in the case of execution by foreign investors,” comments Sobiesław Kozłowski.
Bartłomiej Zalewski – Alior Bank BM
“In the current situation, in the absence of any negative events, it is very difficult to indicate the reason for such – for now two days – weakness of the WSE. After a very good first half of the year, perhaps some investors have become willing to take profits,” Bartłomiej Zalewski, Investment Director, Biuro Maklerskie Alior Banku, comments for the editorial office of Bankier.pl.
“Additionally, the holiday season and lower investor activity, with a sudden increase in the supply of shares, also seem to be the cause of the rapid declines. The biggest losers are large companies, which are sensitive to the moods of foreign investors, and these in turn are sensitive to geopolitical changes in the region,” the expert explains.
“The trail therefore leads to Donald Trump and his chosen vice president JD Vance, who is probably not in favor of supporting the war in Ukraine to a greater extent. There is still a lot of time until the elections and for now this is just conjecture. On the other hand, we are observing how exposed our region is to any reports regarding the war beyond the eastern border,” comments Bartłomiej Zalewski.
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