Week ending August 15, 2008 | Print this page (PDF)

Eastern Europe | Western Europe | Economic Calendar


The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -3.2% this week, while the Russian stock index RTS finished the week up by 3.6%.

In Central Europe, Polish Bank Pekao lost the most ground (-7.1%), followed by Polish natural-gas monopoly PGN (-4.2%) and Hungarian pharmaceutical company Egis (-4.2%). Bank Pekao went down after being downgraded from ‘hold’ to ‘sell’ by a local brokerage. PGN’s stock sold off after it was reported that the company asked the Polish energy regulator for an increase in prices by a third to compensate for higher import costs. The regulator, however, has no intention to further increase prices this year. Shares of Egis suffered after a local brokerage cut the price estimate by 4.2% due to a strengthening of the Hungarian forint against the euro. Among the stocks that fared well, Czech broadcaster CETV (+9.8%) led the way, followed by Hungarian pharmaceutical company Gedeon Richter (+9.2%), and Polish bank Getin Holding (+8.5%). CETV’s stocks benefited from the dollar gaining against the koruna, making the company’s shares cheaper when purchased on the Prague stock market instead of on Nasdaq. Although Hungarian pharmaceutical companies, Egis and Gedeon Richter, have both been downgraded by a local brokerage, Gedeon Richter’s shares gained. The company is expected to benefit from increased demand for generic drugs in Russia. Getin Holding advanced to a seven-week high, reaching 10.15 zloty after the financial-services provider reported second-quarter earnings that beat analysts’ estimates.

In Russia, metals and mining company Mechel gained the most ground (+13%), followed by oil company Surgutneftegaz (+12.3%) and gas company Gazprom (+12%). Mechel benefited from a 13% rally of American depositary receipts in New York on expectations that the company would not receive the maximum fine in a lawsuit brought against the company claiming that Mechel inflated domestic coking-coal prices. Oil producer Surgutneftegaz climbed 1.7% after reporting that second-quarter profits advanced 70% to 53.1 billion rubles. Gazprom went up after offering international energy companies, such as Royal Dutch Shell and Chevron, partnerships in the development of hard-to-develop oil deposits in Russia, in return for international projects. Among the stocks that did not fare well, utility company OGK-2 (-18%) led the way, followed by real estate developer OPIN (-8.3%), and telecom provider Uralsvyazinform (-8.2%). Shares of Uralsvyazinform went down due to slower income growth caused by the consequences of the elimination of compensatory surcharges that became effective this year and the cancellation of local voice tariff indexation.

Nomura Index

Stocks in Western Europe lost ground over the past week. The sectors that fared the worst were financial services (-4.6%) and banks (-5.4%). A new trading platform backed by the top investment banks was launched today, putting pressure on the London Stock Exchange (-15.9%). Goldman Sachs reported that Barclays may need to write down an additional 1.5 billion pounds over the next 18 months. The British bank has little room to absorb further material losses without potentially cutting dividend being cut or paid in shares.

Among the sectors that did well were food & beverage (-0.5%) and automobiles (-1.26%). Swiss packaged food company Nestlé (+1.5%) reported good H1 results showing increased earnings of 6% (year-over-year) by being able to pass on high raw material costs to consumers. The entire automobile sector, including individual stocks of Porsche (+1.9%) and Fiat (+1.3%), profited from the rebound of the US dollar. Additionally, a decline in oil prices made the stocks of the sector more attractive to investors.

Among the more notable euro zone macroeconomic news was the release of the euro zone GDP showing a drop by 0.2% in the second quarter. This is the first decline of Europe’s economy since the inception of the euro, caused by an erosion of consumer spending due to soaring costs as well as faltering sales undermining company investments. The euro zone inflation held at 4% in July which is lower than initially estimated but still above the European Central Bank’s limit of 2%. Food prices rose to 6.7% in July and energy price inflation soared to 17.1%

MSCI Europe Index

Next week’s calendar for Western Europe includes the release of the euro zone foreign trade statistics on Monday, followed by Germany’s producer price index and ZEW indicator of economic settlement on Tuesday.

Eastern Europe’s week kicks off with the release of July employment numbers for Poland and Turkey’s consumer confidence for the previous month on Monday. Poland will also provide July’s industrial output on Wednesday and net core inflation numbers on Thursday.