Skarbiec TFI: Polish banking sector safe, discount was due to market sentiment

12 April 2023

Against the backdrop of global banking sector problems, our sector looks safe, and its discount seemed to be more related to market sentiment than to actual risks, according to Skarbiec Towarzystwo Funduszy Inwestycyjnych (TFI) fund manager Łukasz Siwek.

In March, financial markets encountered significant turbulence in the form of bankruptcies and rapid takeovers of several banks. It started with the problems of Silicon Valley Bank, a regional bank focused on the technology company and startup segment. U.S. policymakers came to the rescue, guaranteeing all customers access to their funds, regardless of size, once again showing that some entities are too big to fail. In the financial markets, however, the game of typing the next victims of the high interest rate environment began. It fell on Credit Suisse, which had been in all sorts of trouble for a long time and was a giant on clay legs. This time UBS and the Swiss authorities came to the rescue, leading to the takeover of the problematic bank, the manager recalled.

“After the banking quake at the beginning of the month, markets are closely monitoring the situation in the sector for fear of possible aftershocks. In our view, the sector is in such good shape that potential problems of smaller banks will not have a significant impact on its stability. This conviction is also reinforced by the observed swift action by policymakers, which shows a strong determination to maintain stability. Against this backdrop, our sector looks safe, and its repricing seemed to be more related to market sentiment than to actual risks.” – Siwek wrote in the Society’s monthly analysis.

The WIG-BANKS index lost 5.4% in March, while year-to-date it has gained 0.3%. The sWig80, which groups the smallest companies, again did best, extending this year’s gains by 3.9% to 16.5% year-to-date. Nearly double the returns were recorded by the mWig40, with 1.9% on a monthly horizon and 8.4% in Q1 2023, respectively. Domestic blue chips were the weakest performers, weighed down by local problems in addition to weak sentiment toward the banking sector: the unresolved issue of franking credits, credit vacations or taxes on excess profits. The aforementioned factors caused the WIG20 index to be depreciated by 4.8% (-1.9% YTD) in March, which ranked it 81st on a monthly horizon among 92 major indexes worldwide, grouped by Bloomberg, he pointed out.

“We maintain our positive outlook on the Polish equity market. We believe that for many companies their valuations are at attractive levels, which in the medium and long-term horizon are investment opportunities. In addition to valuation indicators, this is confirmed by the calls recently announced by strategic investors, testifying to the potential inherent in the companies,” the manager added.

He pointed out that we are in the midst of the ongoing Q4 2022 earnings season.

“One can see great sensitivity to the signals coming from the companies regarding their prospects in the coming periods. Allegro and Eurocash stood out positively, gaining several percent after the announcement of the results, while on the other hand the less clear future in the case of Ten Square Games or DataWalk was met with more than 10% declines. Mention should also be made of the calls announced by strategic investors, with the intention of delisting in the case of TIM and Ciech, or the large discount of PKN Orlen despite its announced dividend policy,” according to Siwek.

Skarbiec Holding is a group whose business is the management of investment funds (open-ended investment funds, specialized open-ended investment funds, closed-ended investment funds) and services for the management of portfolios of financial instruments on commission. Skarbiec Holding S.A. is the sole shareholder of Skarbiec TFI S.A., which was established in 1997 as the fifth investment fund company in Poland and is one of the largest companies independent of any banking and financial group in Poland.

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