A rip-roaring economy and cheap valuations will keep Poland’s stock rally on track, according to investors who say the market can overcome wobbles caused by a Russian drone incursion, sputtering negotiations over Ukraine and a looming tax hike on banks.
Warsaw’s WIG20 index soared as much as 38% in the first eight months of the year, as robust growth and domestic demand attracted foreign investors. But the rally has paused as hopes fade for a breakthrough in Ukraine peace talks and after Russian drones in Polish airspace triggered a NATO response.
One additional negative factor for Polish stocks is the government’s plan to increase taxes on banks, an attempt to rein in a fiscal deficit that’s ballooned as defense spending rises. The market has fizzled since the mid-August policy announcement, falling more than 5% from a peak earlier that month.
Regional markets remain on edge and Poland’s air defense systems are on the highest alert as Russian President Vladimir Putin continues to launch attacks on Ukraine and the US considers new sanctions in a bid to force Moscow to enter into negotiations. Budapest’s BUX index has also retreated 5% from a record high reached in August.
Still, investors say Polish equities are likely to resume the rally that has seen the WIG20 roughly double since 2022. The benchmark index is outperforming the pan-European Stoxx 600 in September as stocks rebound quickly following the drone incursion. Poland’s zloty remains relatively stable, hovering around 4.25 per euro over the past six months.
“Government decisions don’t help, but the big picture didn’t change dramatically, as Poland is still one of the fastest growing economies in Europe,” said Andras Szalkai, portfolio manager Raiffeisen Kapitalanlage GmbH in Vienna. “Many investors missed the earlier rally and may see the retreat as an occasion to enter Polish market.”
The government’s plan to boost the corporate tax rate for banks to 30% next year, from 19%, has called into question the view that Prime Minister Donald Tusk’s cabinet is market friendly, and focused improving corporate governance. The WIG20 is dominated by state-controlled companies and financial firms, making it highly sensitive to political developments.
“The optics of the banking tax are really bad, because this government was heralded as a champion of pro-market policies,” said Gabor Pentek of Accorde Fund Management.
For Tomasz Matras, head of equities at TFI PZU SA, the investment unit of Poland’s biggest insurer, the recent selloff doesn’t necessarily mean the bull market is over. While a sustained retreat is still possible given the scale of the rally, Poland has attractive valuations, strong domestic demand and the chance for more investment financed by EU recovery funds.
“Polish shares are not yet overvalued, and the label of a ‘frontline country’ does not justify a significant discount compared to global markets,” he said.
The WIG20 currently trades at about 10 times forward earnings, a 28% discount to the MSCI Emerging Market index. Polish profits have been steadily climbing over the past three years, with banks enjoying record income despite interest rate cuts. A recent EU court opinion on zloty variable-loans also mitigates some legal risks for lenders.
The recent underperformance is “only a pause in a long-term healthy upward trend,” said Maciej Kik, head of equities at Generali Investments TFI SA mutual fund. “The fundamentals are still strong, with positive macro and improving earnings of Polish companies helping to stabilize the sentiment.”
With assistance from Marton Kasnyik.
This article was generated from an automated news agency feed without modifications to text.
