Polish stocks slumped the most in the world and government bond yields rose to the highest level in almost a year as Poland unveiled changes to its pension system that stopped short of full nationalization.
The WIG20 Index retreated as much as 6.2 percent, the most since Sept. 2011, and traded 4.8 percent lower, the world’s worst-performing equity market today, to 2,197.52 at 4:29 p.m. in Warsaw. The volume of shares traded was more than double the gauge’s 30-day average. Bank Handlowy SA, the Polish unit of Citigroup Inc., dropped 7.3 percent, while Globe Trade Centre SA, the nation’s second-largest property developer, lost 7.7 percent.
Poland will take over and cancel government bonds held by its privately managed pension funds, stopping short of fully “nationalizing” the system as it seeks to curb public debt, Prime Minister Donald Tusk said yesterday. The government will not seize stocks held by the funds and workers’ future contributions will be voluntary, he said.
“The pension news likely represents a net negative in flow terms for domestic equities,” Pasquale Diana, an economist, and Ronan Carr, an equity strategist at Morgan Stanley in London, said in a joint report today. “Despite macro tailwinds elsewhere, valuations remain very full relative to peers.”
Warsaw’s WIG20 Index trades at 11.8 times 12-month estimated earnings, compared with a multiple of 10.1 for the MSCI Emerging Markets Index.
While the “worst case was avoided - an outright liquidation,” reduced inflows “undermine one justification for a valuation premium” on Polish equities, according to Morgan Stanley.
Polish pension funds will also be banned from buying government debt. The country’s 14 pension funds held 121 billion zloty of government debt as of July 31, 21 percent of the outstanding total, compared with 36 percent owned by foreign investors, Finance Ministry data show.
The reduction in public debt as a result of canceling bonds held by pension funds “is not a game changer for credit ratings, while posing significant risks to the local bond market in a post-quantitative-easing world,” Bank of America/Merrill Lynch analysts wrote in a note today.
Yield on the government’s five-year zloty-denominated bonds rose five basis points, or 0.05 percentage point, to 4.22 percent, the highest level since October 2012. The Finance Ministry sold today 5.71 billion zloty of bonds, including securities maturing in July 2018 at a yield of 4.22 percent. It last sold five-year paper yielding more than 4 percent in April 2012.
The zloty lost 0.1 percent to 4.2811 per euro, trimming this quarter’s advance to 1 percent, the fourth-biggest among 31 major currencies monitored by Bloomberg.