Oct. 22 (Bloomberg) -- Warsaw overtook 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 show. In the U.K., 59 initial share sales took place in 2008, the data show.

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 almost 20 years after the collapse of Communism. 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 Ph.D. student in geodesy at Warsaw University of Technology, who bought 2,000 zloty ($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 show. About 1.3 billion shares change hands daily on Warsaw's main market, exchange data show.

`Staying Away'

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 $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.

Holiday Planet, Vedia

Holiday Planet SA, which sells travel over the Internet, rose as high as 10 zloty on its first day of trading, before closing at 0.67 zloty, bourse data show. The Plock, Poland-based company has since dropped to 0.32 zloty.

Vedia SA, the Piaseczno, Poland-based maker of electronic equipment, more than tripled on its first day in April, while Warsaw-based Sakana SA, a sushi chain, jumped fourfold during its May debut. The stocks have since lost 8.3 percent and 39 percent, respectively.

Domzdrowia.pl SA, the Zielonki, Poland-based online pharmacy, advanced as much as 55 percent when it debuted on Sept. 16, even as markets slid following New York-based Lehman's collapse. The shares have since lost 59 percent.

``There's no liquidity there,'' said Adam Gawlik, who helps manage the equivalent of $8.6 billion at PZU Asset Management in Warsaw. ``And prices are often radically above the fundamental value, if you're able to estimate any value at all.''

Price Manipulation

Poland's Financial Supervisory Commission is examining the debut of Holiday Planet. Investors may have manipulated the price, according to Lukasz Dajnowicz, the regulator's spokesman. He didn't name any people being investigated.

The share price gyrations and an absence of profits at some companies doesn't bother Luczynski, who plans to buy more biotechnology stocks after investing in Euroimplant. The Raszyn, Poland-based company, which develops tissue reconstruction technology, lost 607,000 zloty in 2007, according to its annual report.

``Biotechnology has a big chance of success,'' Luczynski said. ``For me, Euroimplant was an investment in dreams.''

To contact the reporter on this story: Pawel Kozlowski in Warsaw pkozlowski@bloomberg.net

Last Updated: October 21, 2008 19:37 EDT