Nascent Warsaw Stock Exchange Creates Breed of Stock Pickers

TWICE a week after classes, Piotr Syta treks over to a nearby bank. He likes to keep tabs on his stocks.

``The trend is so good that small investors like me can make money,'' he says. In fact, he has made a mint on the Warsaw Stock Exchange.

Only trading stocks since April, Mr. Syta has turned 1 million of his own zlotys and another 10 million borrowed zlotys into a portfolio worth 40 million zlotys. That's after repaying the loan -

the equivalent of turning $50 into nearly $2,000.

``It's not enough to buy a car,'' the university student says over French fries and a soft drink at a Warsaw Burger King. But ``it's big money for me.''

Syta's success may say more about the Warsaw Stock Exchange than his own stock-picking ability. Since mid-April, the Warsaw index (WIG) has zoomed from 1,000 to more than 4,000 points.

``It's the only thing [in Poland's restructuring drive] that I can wholeheartedly say is a 100 percent success,'' says Miroslaw Miernik, a consultant helping United States investors in Poland. ``They have created an almost permanent bull market here.''

The Warsaw Stock Exchange has not been an overnight success. On the first day of trading in April 1991, five companies were listed and $2,000 in shares changed hands. Now, the exchange lists 22 Polish companies and sees trading of about $40 million a session. Poland claims to have the largest exchange (in terms of trading value) of all the eastern European markets.

For Poland, the exchange marks a return to its financial roots. Until 1939, the country had six stock exchanges. The one in Warsaw, founded in 1817, handled 90 percent of the trades. With an acute sense of irony, the Poles located their new exchange in what used to be Communist Party headquarters.

``In Poland, there are many symbolic changes,'' explains Stanislaw Lopuszanski of the Polish Information Agency. The former Communist building houses several banks and sports on its roof the names of corporations such as Nissan and Ricoh.

Of course, Warsaw is not Wall Street. The volume of trades and the trading floor itself are minuscule compared with the New York Stock Exchange (NYSE). Warsaw has computerized the transactions. Like the NYSE, it uses specialists to handle each stock. Unlike the NYSE, stock prices do not fluctuate during the session.

Instead, in common with other European exchanges, the specialists take all the orders for their stock and set a single end-of-session price intended to maximize turnover and match as many buy and sell orders. All orders that meet the price are executed. Those that do not are not.

At the moment, the exchange operates three days a week. In 1994, the exchange moves to five-day-a-week trading.

Although share prices cannot go up or down by more than 10 percent in a single session, the exchange has given its investors a wild ride. When the Polish parliament last May cast a no-confidence vote in the government, the WIG fell by a third in subsequent days. During the summer, the WIG doubled in value, then lost a fifth of its value after parliamentary elections put former Communists in charge of the government.

``Some investors didn't realize that the political situation could have an impact on the stock market,'' Syta says. Syta pulled out all his money before the elections. Two weeks afterwards, he began buying again. The WIG started climbing again and reached record levels above 4,000. Not even the return of Communists has been able to keep this market down.

One reason for the market buoyancy is that Poles have limited alternatives for investments. The previous government forced banks to lower their interest rates, making bank deposits unattractive when annual inflation still runs close to 30 percent. The previous government also encouraged the public to invest in stocks by not taxing capital gains.

The new government appears committed to continuing the economic reforms of its predecessor, including company and bank privatizations, which have created new entities that could be listed on the exchange. But the government has signaled that it is considering taxing capital gains, which would be a blow to investors.

The market is already overvalued, Mr. Miernik says. ``The price-to-earnings ratios are in the area of 30 to 40. That's ridiculous!'' By comparison, the Standard & Poor's industrial index is under 29, despite being close to a record high.

But Miernik says it is more likely the WIG will halt its climb than decline precipitously.

Syta is also worried. ``In the future only the people with a lot of money will be able to make money'' on the exchange, he says. ``So now, I am thinking about the Czech market.''