Polish Stocks Slide With Zloty as Pensions Revamp Rattles Market

  • Citigroup recommends selling zloty versus euro, targets 4.50
  • Government plan is aimed at boosting savings, investments

On a day when most stocks in emerging markets gained, Poland was a notable exception.

The WIG20, the nation’s main equity gauge, fell as much as 2.7 percent on investor speculation a government plan to dismantle privately owned pension funds will hurt the local market. The zloty was the worst performer among 31 major currencies.

Here are some of the moves that stood out Monday:

  • Poland’s largest insurer, PZU, fell 2.3 percent; led declines on the WIG20 and headed for the lowest close since its debut in 2010
  • Government bonds dropped for the first time in six days, driving up the yield on five-year notes by three basis points to 2.22 percent
  • The zloty weakened 0.4% to 4.4297 per euro, headed for the biggest two-day retreat since the Brexit vote rattled markets
  • WIG20 dropped 0.9 percent as MSCI Inc.’s developing-nation gauge rallied for a fifth day

Citigroup Inc. strategist Luis Costa recommended investors pare holdings in the zloty until it reaches 4.50 per euro, citing the lack of detail on how the government will move $35 billion of assets held with pension funds onto Poles’ private retirement accounts. The plan -- slated to go into effect at the start of 2018 and aimed at boosting savings and investment -- is the latest jolt to Polish markets after S&P Global Ratings’ surprise credit downgrade in January and Britain’s vote to leave the European Union last month.

“Markets want to know what will happen to the equity allocation at the pension funds, how it will be transferred and whether it will be sold,” Costa and other strategists wrote in a note. The proposed overhaul of the pension system comes at a time of budget strain “as Polish growth gets revised down and the country continues to struggle with shocks with the European Union,” he said.

Poland’s privately run pension funds, set up in 1999 to provide long-term financing for the nation’s companies and make Warsaw into a regional capital hub, own a fifth of the shares traded on the Warsaw stock exchange. The revamp would help the eight-month-old government fulfill an election promise to bolster investments and achieve what ruling party leader Jaroslaw Kaczynski on Saturday called a new “economic order” based on wealth redistribution and a rejection of free-market reforms. 

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