WARSAW has overtaken London to become Europe's hottest market for initial public offerings with a small-cap exchange that's luring investors even after listed shares tumbled 69 percent this year.
Six companies debuted in Poland since last month's bankruptcy of Lehman Brothers Holdings Inc, bringing this year's total to 68, data compiled by Bloomberg News showed yesterday. In the United Kingdom, 59 initial share sales took place in 2008, according to the data.
The combination of 10.9 percent annual wage growth this year and disclosure rules that allow companies listing on the NewConnect market to sell shares without providing investors with a prospectus is prompting an IPO boom.
The NCIndex of 73 companies on the small-cap bourse fell 21 percentage points more than Poland's benchmark WIG20 Index, whose 20 companies have an average market value 643 times larger than those on NewConnect.
"This is a casino," said Robert Luczynski, 29, a graduate student at Warsaw University of Technology, who bought 2,000 zloty (US$713) of Euroimplant SA shares on NewConnect five months ago. The shares have fallen 14 percent since March 18. "Prices swing wildly as even a small sum can move a stock."
Fewer than 5 million shares trade daily on average on NewConnect, where 49 of this year's IPOs took place, data compiled by the Warsaw bourse and Bloomberg News show. About 1.3 billion shares change hands daily on Warsaw's main market, exchange data show.
Half of the companies on NewConnect were unprofitable in the first six months of 2008, according to August estimates by the Warsaw-based Parkiet newspaper. Investors get financial updates every six months, not quarterly. Only annual earnings need be reviewed by an auditor, according to bourse regulations.
"It's amazing what is happening on the NewConnect market," said Piotr Zarebski, who helps manage the equivalent of US$320 million at BRE Wealth Management SA in Warsaw.
"For us the market is too risky and we are staying away."
Private investors accounted for 92 percent of NewConnect trading in the first half of the year, while on the main exchange, institutions were responsible for about 82 percent, Warsaw bourse data show. Individual traders are attracted by price swings that offer chances for short-term gains, said Pawel Wielgus of the Wroclaw, Poland-based Association of Individual Investors.