Poland's Lopsided Recovery in Five Charts

  • WIG20 stock gauge beats returns for emerging-market peers
  • Premium to hold Polish debt vs German notes biggest since `14

One month on from Standard & Poor’s shock ratings cut, Polish assets paint a mixed picture. 

On the one hand, foreign notes have recouped losses, stocks are beating emerging-market peers, and the currency has erased the decline it suffered after the downgrade. On the other, the premium investors demand to hold local debt over German bonds rose to the highest in two years, while returns on zloty-denominated paper are lagging regional rivals Hungary and the Czech Republic.

These five charts give a snapshot of the uneven comeback in the markets of the European Union’s largest eastern economy.

Poland’s currency rose less 0.1 percent to 4.3969 per euro at 3:56 p.m. in Warsaw, close to its level before the Jan. 15 downgrade sent it tumbling to a four-year low. At the same time, the zloty is only the 10th best-performing currency in emerging markets and lags the Hungarian forint and Romanian leu.

Even after their best week since the rating action, local-currency bonds haven’t fully recovered. The yield on the country’s 10-year zloty government note fell two basis points to 3.05 percent today, still 16 basis points higher than the day before the S&P move. Global market turmoil spurred demand for German notes as a haven asset, increasing the premium to hold Polish debt to the highest since February 2014 last week.

Polish bond returns were flat in the month and missed out on a rally enjoyed by 21 of 26 countries monitored by Bloomberg and the European Federation of Financial Analysts Societies. Hungary and the Czech Republic handed investors returns of 0.8 percent and 0.6 percent, respectively, the data show.

Investors often disregard rating companies’ credit grade changes and Poland’s dollar-denominated debt has risen since the downgrade. The yield on bonds due in March 2023 was 13 basis points lower than on Jan. 15. Euro-denominated notes maturing in January 2026 that the government sold four days before the downgrade, are trading at the same yield they were sold at.

The WIG20, the nation’s benchmark stock index, has returned 2.8 percent in U.S. dollar terms since the downgrade. That compares with a 0.4 percent gain for MSCI Inc.’s emerging market gauge. Utility stocks were the big contributors after the government pledged to let them keep paying dividends.

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