Asians Bought Polish Bonds as Election Risks Spooked Americans

  • Asian holdings reached equivalent of $12.5 billion in 2015
  • S&P downgrade may jeopardize flows from some Asians: Nomura

Asian investors boosted their holdings in Polish government debt by more than a quarter in 2015, undeterred by escalating political turmoil.

Buyers from Japan to Thailand, including central banks, increased investments in zloty-denominated debt to 50 billion zloty ($12.5 billion) last year from 39.3 billion zloty at the end of 2014, according to data from Poland’s Finance Ministry. Holdings by North Americans dropped 17 percent to 37.9 billion zloty in the period as the U.S. embarked on its first interest-rate increase in almost a decade.

Asian investors overtake North Americans in their holdings of Polish bonds.

The figures are the latest available and precede Standard & Poor’s shock decision to cut Poland’s credit rating in January on concern the new government was encroaching on the independence of key institutions including the constitutional court and public media. The rising influence of the Law & Justice party, which took over the presidency in May and parliament in October, rattled investor confidence and spurred selling in the government’s bonds.

The downgrade may stand in the way of some Asian investors to continue building positions this year, according to Peter Attard Montalto, a senior emerging-markets economist and strategist at Nomura Holdings Plc in London. Flows from private banks, life insurers and pension funds in Asia would be most at risk, he said. 

Poland’s 10-year bond yield increased 20 basis points to 3.14 percent in January, before rising to 3.16 percent on Wednesday. The sovereign’s rating was lowered by one step to BBB+, S&P’s third-lowest investment grade, with a negative outlook.

The country, the largest eastern member in the European Union, has long been regarded as a haven among emerging markets. Asian investors accounted for 27 percent of foreign bond holdings at the end of last year, while North Americans made up 18 percent. Overseas investors represented 40 percent of total ownership in Polish bonds.

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