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Sunday, June 24, 2007

Polands Stock Boom

In Bloomberg Today:

Poles Snap Up IPO `Promises,' Evoking Memories of Internet Bust

July 12 (Bloomberg) -- Piotr Skowron started his company six weeks ago and already has one eye on the stock market.

``We have contracts in Poland and abroad, and we want to sell shares,'' says Skowron, 45, whose biotechnology company specializes in cloning genes. ``We want to get more capital and be recognizable across the world.''

Poland today resembles Silicon Valley during the Internet- driven boom a decade ago as companies with little or no revenue stage initial public offerings, brokers court executives with seminars on how to sell shares and locals pour cash into the stock market. The Warsaw Stock Exchange expects to attract at least 70 IPOs this year, beating the record of 62 set in 1997.

The good times may be coming to an end as stocks become expensive and too many companies sell shares, some economists and fund managers say. The first IPO to fail will spook investors and drag down the whole market, says Stanislaw Gomulka, economic adviser to the government and central bank in the late 1990s, when Poland's benchmark index doubled in value.

``People will start selling in panic, mainly the companies that sell promises, the small and medium caps whose valuations now raise concerns,'' Gomulka says. ``It usually takes a few years before they bring their money back to the market.''

The mWIG40 Index, whose members have a median market value of $810 million, has doubled in the past 12 months. Index members trade for an average of 35 times estimated annual earnings, more than twice those in the WIG20 Index of the biggest companies.

`Nice Adventure'

The boom has made Warsaw the stock market hub of former communist Europe. More than 100 companies listed their shares in Poland during the past three years. With the 2007 crop, the number of new companies traded in Warsaw will almost equal those in Prague, Budapest and Vienna combined.

Companies from outside Poland, such as Hungarian oil producer Mol Nyrt. and Czech power supplier CEZ AS, have sought listings to attract new investors.

Poles have more than 130 billion zloty ($47 billion) in stock, bond and property funds after a 63 percent increase in 2006, according to the Warsaw-based Chamber of Fund and Asset Managers. That's more than twice the growth in Hungary and the Czech Republic.

``It's a nice adventure to earn money this way,'' says Jozef Mianowski, 50, lining up to buy shares in property developer LC Corp SA at a Warsaw branch of broker IDM SA. ``I'm sure stock prices will keep going up because of the economic growth.''

Poland's gross domestic product, currently about $330 billion, is growing at an annual rate of more than 6 percent.

Locals like Mianowski bid for 11.3 billion zloty of shares offered by LC Corp, or 53 times more than was available, the company said June 22.

``We have 50- and 60-year-old ladies coming, saying they want to buy shares,'' says Tomasz Bilski, head of sales at Bank BPH SA's brokerage in Warsaw. ``They want a 30 to 40 percent return instead of 4 to 5 percent.''

Stop, Think

Sebastian Buczek, who oversees the equivalent of $6.4 billion at ING Investment Management Polska SA in Warsaw, expects gains in Polish stocks to slow for the rest of 2007. The broader WIG Index, which includes 277 stocks traded in Poland, advanced 31 percent in the first half.

Polish funds are still taking in money from clients and putting it into the stock market, Buczek says. His funds must keep 80 percent of its equity assets in Polish shares.

``Many investors have become too optimistic,'' Buczek says. ``People started to believe that investing in shares is an easy way of making money. They should stop and realize investing is very risky.''

Gomulka, who was chief economist of PZU SA, Poland's largest insurer, before retiring in January, is more pessimistic.

``Share prices in Poland at the moment are high, very high,'' Gomulka says. ``A correction of about 20 or 30 percent is inevitable if people are so fascinated with stocks.''


Shares of BBI Development NFI SA, an investment fund-turned- property developer, have almost tripled during the past year, even though the Warsaw-based company won't complete its first major projects until at least 2010.

``Construction companies are trendy now and sell shares to the public having only a chunk of land and some ideas,'' says Mikolaj Centka, a member of the management board at Ventus Asset Management in Warsaw. ``When the Internet bubble burst, only solid companies survived. Here the case will be the same.''

Skowron, the biochemist whose GenPandora Sp. z o.o. in the northern city of Gdansk sells cloned genes for use in experiments, downplays the risk of a slump.

``I am optimistic about it,'' he says while attending a seminar for executives planning to take their companies public. And if his share sale fails? ``I will create another company.''

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