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The second half of the year on the WSE may be marked by a better Commentary dated 23 July 2018.
Sebastian Buczek
President of the Management Board of Quercus TFI S.A.
Encouraging investors to buy discounted American shares now resembles the proverbial throwing of peas against a wall. A 10% drop in WIG since the beginning of the year…
… and the decline in the overall broad market by more than 25% since Q1 2017. – below shown on the example of sWIG80…
… have done their bit. Instead of buying, investors run away from the market for fear of deepening their inheritances.
If the tradition is to be satisfied, we are now facing quite a good second half on the WSE. All the more so because the prices of American shares are currently low, and in many cases very low. Even among the large companies, one can find attractive valuations, which was difficult in 2017. For example, the broadly understood financial sector, i.e. banks, the company or Kruk, is valued at profits forecasted for the current year at 11-14 times. Industrial companies with WIG20 are listed at EV/EBITDA18 of level 5 or lower.
Many medium-sized and smaller companies are very low-priced. The most popular P/E18 ratio is usually below 10 and in extreme cases 5-6, which has not been the case since 2009!
The question most frequently asked by investors is – and where is the new capital to be raised on the WSE? In fact, it is difficult to expect any broad stream of new resources from open-ended pension funds, investment funds or foreign investors. On the other hand, there are strategic investors who, using low valuations, will take over or buy out the companies, as has happened recently with Colian or is happening now with MCI.
We consider that the most important risk factor is not the lack of capital, but the high level of stock quotations on developed markets, especially in the United States, after more than 9 years of boom.
To sum up, American stocks are cheap, and in many cases very cheap. The fear of investors and the reluctance to buy overestimated assets are probably the forerunners of a completely decent second half of the year on the WSE.
The author is the founder and President of the Management Board of Quercus TFI S.A. He is also an Associate Professor at the Warsaw School of Economics.
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