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Polish Zloty May Advance on Foreign Demand for PKO Stock Sale
Poland's zloty may gain against the euro this week amid speculation foreign appetite for shares in the initial public offering of PKO BP, the country's largest bank, will boost the currency.
Among 14 investors, strategists and traders polled in London and Warsaw on Oct. 29, 10 advised buying zloty against the euro, two said to hold and two to sell. Versus the dollar, 11 of the 14 recommended buying, one said hold and two to sell.
``PKO is a must for investors and we'll be taking part in the IPO and buying zloty,'' said Nerea Heras-Mendaza, who manages about $127 million in emerging market stocks at AXA Investment Managers in Frankfurt. ``Poland's growth makes it a very interesting country to invest in.''
International investors may buy as much as 35 percent of the $1.8 billion in PKO stock being sold in Poland's biggest state asset sale, Treasury Minister Jacek Socha said in an interview on Oct. 26. Foreigners will probably purchase a net $900 million of Polish shares this year after withdrawing $600 million last year, according to estimates from the Institute of International Finance, spurring demand for the currency needed to purchase them.
Poland's economy, the largest among the 10 nations that joined the European Union in May, will expand 6 percent in 2004, the fastest pace in six years, the central bank estimates. Gross domestic product will increase 4.9 percent next year, outpacing the Czech Republic and Hungary, the European Commission forecasts.
`Clear Positive'
Against the euro, the zloty fell 0.8 percent last week to 4.3246 at 5 p.m. on Oct. 29 in Warsaw. The zloty was up 0.2 on the week versus the dollar to 3.3901. The currency is the biggest advancer versus the euro so far this year among all 59 currencies tracked by Bloomberg data, rising 8.7 percent. Poland's financial markets are closed today for a national holiday.
The zloty declined almost 1 percent against the euro on Sept. 24, when Poland's parliament approved the PKO sale and added a request that the government bar foreigners from the sale.
Prime Minister Marek Belka's cabinet rejected the request, saying it contradicted EU laws that prevent investors being discriminated against on the basis of their nationality. The final PKO offer price will be set Nov. 3 and the stock is scheduled to start trading on Nov. 10.
``The foreign tranche of the IPO will be taken up completely,'' said Osman Wahid, a currency strategist at JPMorgan Chase & Co in London. He estimates international investors will buy $500 million worth of zloty to fund PKO share purchases, ``a clear positive for the zloty.''
JPMorgan, the fourth-largest currency trader according to Euromoney magazine, predicts the zloty to gain to 4.20 per euro by year-end. Wahid, who participated in the survey, recommended investors buy the Polish currency.
`Huge Impact'
Some domestic participants in the PKO offering may sell their shares to foreign investors after the stock starts trading, helping the zloty gain further, Wahid said.
Purchases by foreign investors have helped push the Warsaw Stock Exchange's benchmark WIG index 22 percent higher so far this year, said Jeffrey Anderson, director for Europe at the Institute for International Finance in Washington.
When the zloty's appreciation is taken into account, the gain is 35 percent, according to Bloomberg data. The IIF represents 320 of the world's largest financial services companies, including Citigroup Inc. and Deutsche Bank AG.
``Your average international investor is now starting to see Poland as part of the EU, where a year ago, it was an emerging market country,'' said Lars Christensen, a strategist at Danske Bank S/A in Copenhagen. ``This has a huge impact on attracting investment and the zloty will continue to strengthen.'' Christensen participated in the survey.
Company Sales
Poland also plans to sell four state-owned companies next year, Socha said in the Oct. 26 interview in Warsaw. Stakes in Zelmer SA, the nation's largest maker of home appliances, natural gas monopoly Polskie Gornictwo Naftowe i Gazownictwo SA, distiller Polmos Bialystok SA, refiner Grupa Lotos SA, will be sold through 2005, he said.
``Privatization is always positive as it builds up foreign direct investment inflows,'' said Tania Kotsos, a currency strategist at RBC Capital Markets in London. Kotsos advised buying the zloty this week and said it may gain as high as 4.2350 per euro by year-end.
Socha, who was in London last month presenting the PKO share sale to U.K. investors, said he expects the price ``will be closer to the upper limit'' of a 17.5 zloty to 20.5 zloty range, Polish news service PAP reported on Oct. 28.
A higher price may lift demand for the Polish currency, said John Reade, a currency strategist at UBS AG in London. The price announcement on Nov. 3 ``could trigger a bout of zloty buying,'' he said, adding that the currency may strengthen to 4.30 per euro by the end of the week, Reade said.
Bloomberg conducted surveys of east European currencies for the past 20 weeks, with 14 of those polls indicating the zloty would gain. It rose in eight.
Following are the results of the survey:
BUY SELL HOLD
Zloty versus euro 10 2 2
Forint versus euro 0 5 8
Czech koruna versus euro 2 3 5
Zloty versus dollar 11 2 1
(Source: http://quote.bloomberg.com/apps/news?pid=nifea&&sid=al0AxHIc8ZPk)
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