Traders Once Bitten by Polish Politicians Twice Shy of Stocks

  • Management changes in state-controlled companies hurt shares
  • WIG20 among worst-performing equity indexes this year

For investors, Polish politics can only bring bad news to East Europe’s biggest stock exchange.

The gauge for the biggest companies listed in Warsaw has slumped 18 percent since the Law & Justice party’s victory on Oct. 25 and is set for its worst year since 2008, even with the economy forecast to expand 3.5 percent, one of the fastest rates in the European Union. The WIG20 index’s decline is the fourth-biggest globally in local-currency terms, data compiled by Bloomberg show.

“Nothing matters anymore: neither fundamentals, nor relatively low valuations of Polish companies,” Jaroslaw Lis, who helps manage the equivalent of $662 billion at BPH TFI SA in Warsaw, said by phone. “The government is anti-market and nobody sees a chance of its rhetoric changing.”

Plans by Law & Justice to tax banks and retailers and reshuffle the management at state-controlled companies including PZU SA, the country’s biggest insurer, are stoking concern the moves will weaken Poland’s capital markets. It’s not the first time an incoming government has targeted big business in an effort to meet a populist agenda. Civic Platform, which ruled the country for the previous 8 years, cut holdings of local pension funds, taxed copper output and was forcing power utilities to invest in unprofitable coal mines.

Political Nuance

“Poland is still in the positive camp, but we’re wondering if we should take it out,” Valentijn van Nieuwenhuijzen, head of multi asset at NN Investment Partners NV, said Wednesday. While investors anticipated a “reasonable” program before the election, they’ve been “surprised by the speed and detail” of the changes taking place, he said.

The WIG20 extended losses in a 40-minute slide after a report Tuesday that the government was seeking to coordinate the investment plans of several of the biggest state-run listed companies. When a deputy minister explained later in the day that the program will be voluntary and only affects research and development, stock traders ignored him.

The companies where the government has the deciding vote at shareholder meetings account for more than 60 percent of the total market capitalization of the WIG20.

“Foreign investors are more scared because they don’t know the nuances of Polish politics and markets,” said Magdalena Komaracka, an equity analyst at Erste Securities in Warsaw. “They’re asking if stocks have finished their fall. But if emerging-market valuations drop, it will provide another reason for declines in Warsaw when the government sends signals like this.”

The price-to-earnings ratio for companies in the WIG20 dropped to 9.9 times from 13, below the ratio for the MSCI Emerging Markets index, which increased from 11 times earnings to 12 times. Polish stocks still aren’t cheap enough for many investors, Lis said.

“It’s super cheap, but investors, mostly foreign ones, read each word the politicians say as an element of risk and as an excuse to sell.”

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