Polish Stocks Drop on Pension Fund Overhaul Plans

Polish stocks erased losses after the government unveiled proposals to reduce the role of pension funds, the biggest investor in the local equity market. Government bonds gained and the zloty weakened.

The WIG20 Index of the biggest and most traded companies slumped as much as 2.9 percent before paring losses when Finance Minister Jacek Rostowski ruled out taking over pension fund assets. The gauge closed little changed at 2,246.66 points in Warsaw.

“Investors got some relief after the government said explicitly that they won’t nationalize pension funds,” Jakub Bentke, who helps manage the equivalent of $1.5 billion zloty of equities and debt at KBC TFI SA mutual fund in Warsaw, said by phone today. “It means that they won’t see a sudden supply of equities from these funds as you cannot sell stocks worth about 100 billion zloty while preserving their value.”

Poland will downsize its fund-based pension system to curb the country’s public debt, choosing one of three methods for the overhaul presented today, Rostowski said. The country’s privately-managed pension funds, which can invest as much as 47.5 percent of their assets in stocks, held 110.8 billion zloty ($33.2 billion) in equities on May 31, latest data from Poland’s financial-market regulator show.

The government, which in 2011 reduced cash transfers to funds to 2.3 percent of a worker’s pay from 7.3 percent to help trim the deficit, seeks to overhaul the industry at a time the economy is growing at the slowest pace in more than a decade.

Showing ‘Interest’

“They unequivocally ruled out the possibility of nationalizing pension funds so the worst case scenario hasn’t materialized,” Andrzej Domanski, who manages 550 million zloty in stocks at mutual fund Noble Funds TFI SA, said by phone from Warsaw today. “The good thing is that the Finance Minister actually showed an interest in the impact of the reform on the equity market.”

ING Bank Slaski SA, which together with its majority-owner ING Groep NV own Poland’s largest pension fund, fell 1.5 percent. Jastrzebska Spolka Weglowa SA, a coal miner, declined 4.1 percent to 62.80 zloty, the lowest on record.

The yield on 5-year government bonds fell 11 basis points, or 0.11 percentage point, to 3.72 percent today, while the zloty weakened 0.3 percent to 4.3513 against the euro.

The government narrowed its budget deficit less than planned last year because of the economic slowdown and has until 2014 to reduce the gap to an EU-prescribed level of 3 percent of economic output. It also has to keep the public debt below 55 percent, a level that would trigger austerity measures.

State transfers to the 14 funds will cost 11.3 billion zloty this year as Finance Ministry sells more bonds to make up for the shortfall in payments to current retirees, according to a government report published today.

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