Polish Opposition Victory Weakens Zloty as Bank Shares Decline

  • Opposition party garners 37.7% of vote, exit polls show
  • Bank shares among biggest decliners on WIG20 stock index

Polish banking stocks declined and the zloty weakened after the opposition Law & Justice party claimed victory in national elections for the first time in a decade with plans to boost spending and introduce taxes on the financial industry.

The nation’s assets have underperformed emerging-market peers in the past month amid investor concern Law & Justice will assert more control over institutions, including the National Bank of Poland. With exit polls overnight showing Law & Justice set to claim 37.7 percent of the vote, Sunday’s ballot marks the first time a single group has won a majority in parliament since 1989. Official results are expected tomorrow.

The zloty weakened 0.1 percent to 4.2597 per euro at 11:45 a.m. in Warsaw, extending its loss in the past month to 0.8 percent. Law & Justice’s pledge to help appoint central-bank policy makers willing to reduce borrowing costs sent the zloty to a nine-month low against the euro last week. A banking index fell to the lowest in more than two weeks.

“The new government may lead to a shift towards more populist policymaking,” Jakob Christensen and Morten Helt, analysts at Danske Bank A/S in Copenhagen, wrote in a report today. “We expect zloty volatility to remain high in the near term and see a risk that the rate against the euro may inch up further” and reach 4.30 per euro in the coming month.

Polish zloty bonds fell slightly, lifting the yield on the country’s two-year notes by two basis points from a six-month low to 1.64 percent. The yield on the 10-year security also increased three basis points, taking the premium over similar German bonds to 214 basis points, 12 basis points above a seven-month low from Oct. 5.

Banks Drop

Warsaw’s WIG20 stock index rose 0.4 percent as utilities and miners increased. Bank shares fell, with state-controlled PKO Bank Polski SA dropping 1.7 percent, a third day of declines. The benchmark stock gauge tumbled 8.5 percent this year, dragged down by power utilities and banks. Law & Justice plans to tax lenders and burden them with the costs of conversion of Swiss franc mortgages to zloty.

The WIG banking index, tracking 15 financial institutions in Poland, declined 0.4 percent with three-month daily average trading of 68 percent.

Polish lenders will be additionally pressured by Law & Justice appointing dovish monetary policy makers next year, according to Andrzej Domanski, who manages equities at Polish mutual fund Noble Funds TFI SA in Warsaw. “A rate cut next year has become a very probable scenario that hasn’t been priced in yet,” he said by phone on Sunday.

Law & Justice won the presidency this year, giving the party the country’s top posts for the first time since President Lech Kaczynski was killed in a plane crash in 2010.

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