SocGen's Sole Winner in Emerging Markets Amid Fed Bets Is Zloty

  • Says Polish political risk is overestimated, economy resilient
  • Other EM currencies will weaken as Fed is set to raise rates

Buying the zloty with euros is Societe Generale SA’s only bullish trade in emerging-market currencies as the French bank says Poland’s economic resilience offsets the risks of fiscal pressure from the policies of the new government.

“The balance of risks to emerging-market currencies is decidedly to the downside,” Jason Daw, a foreign-exchange strategist at Societe Generale in Singapore, said in a note on Sunday. “Our sole outright bullish emerging-market trade is short euro-zloty due to an overdone political risk premium, high economic resilience and interesting valuations that are supportive of a stronger zloty.”

Poland’s currency rose 0.5 percent to 4.2519 per euro at 6:02 p.m. in Warsaw, the biggest gain among 24 developing-nation currencies tracked by Bloomberg and reducing its loss from the past month to 0.7 percent. The sharpest monthly gain in U.S. payrolls this year led to traders increasing the odds the Federal Reserve will raise borrowing costs at its December meeting to 68 percent on Monday.

Societe Generale reiterated its call on the zloty from Oct. 13, when the currency traded at 4.2380 per euro and Poland was two weeks away from a general election that eventually gave the opposition Law & Justice party a parliamentary majority. The party rose to power on a platform of promises including more welfare spending, taxes on banks and lowering the retirement age.

Societe Generale said then that most of the political risks were already reflected in the zloty’s valuation, with the currency buoyed by Poland’s strengthening domestic demand and limited exposure to China’s slowing economy.

The zloty “still remains below the level determined by fundamental factors,” Poland’s central bank said in its November economic projection released on Monday. The European Union’s largest eastern economy grew 3.3 percent from last year in the third quarter, Jacek Kotlowski, deputy head of the central bank’s research institute said at a press conference. The statistics office will release preliminary growth data on Friday.

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