Europe’s Worst Currency Lures NN Manager Undaunted by Politics

  • Zloty weaker than all 12 currencies in the region this quarter
  • NN Investment Partners says economy makes it a zloty bull

Poland’s new leaders will probably soften a proposal to force banks to convert $35 billion of Swiss franc mortgages into zloty, according to a money manager whose contrarian bet calls for a rebound in eastern Europe’s worst-performing currency.

Marcin Adamczyk, who helps oversee about $7 billion of emerging-market debt as a fund manager at NN Investment Partners in the Hague, is buying the zloty on the view that it will strengthen once the government clarifies details of a home-loan swap that the central bank deemed as "pure evil" in February. His call stands contrary to currency forwards predicting an almost 1 percent depreciation by year-end.

Poland’s zloty has fallen 3.5 percent against the euro this quarter in part on concern the government will follow through with a plan to help 535,000 Poles who took out mortgages in foreign currencies, mainly the franc. These mortgages are harder to repay because the Swiss currency has rallied 16 percent against the zloty in the past two years. President Andrzej Duda is reworking the proposal after the financial market regulator calculated it will tip two-thirds of banks into the red.

“It seems the government intends to take care of the conversion of Swiss franc loans without burdening banks excessively and a lot of expectations have already been priced in," Adamczyk, whose emerging-market local-debt fund beat 65 percent of peers in the past year, said by phone from the Hague. “The zloty’s valuation is attractive and justifies taking on such risk."

The zloty was little changed at 4.3943 against the euro on Monday compared with forwards showing the it will weaken to 4.43 against the euro by the end of the year. The currency tumbled to a four-year low of 4.5120 in January after S&P Global Ratings cut the country’s credit score, citing worries over the independence and effectiveness of key institutions since Law & Justice party won parliamentary elections in October.

While Adamczyk has a neutral stance on Polish government bonds, he sees potential for a tightening of the premium investors demand to hold the securities over similar German bunds. The spread between Polish and German 10-year bonds widened to 307 basis points on Friday, the most since 2012.

“Investors need more certainty to increase exposure to Poland,” he said. “Solving the issue of CHF loans could bring relief for the zloty, and for bonds as well.”

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