Polish stock market likely to see foreign investors turning their backs for some time after elections (opinion)
Poland's presidential runoff result, marked by Karol Nawrocki's win, is likely to be perceived negatively by foreign investors, as it means the stalemate in the government-president relationship will continue. In the short term, declines in the domestic stock market are possible, managers of VIG-C Quadrat TFI assessed. The analysts at Erste agreed that investors from abroad may turn their backs on the Polish stock market for some time following Poland's presidential elections. In their view, the results are likely to lead to turbulence in the ruling coalition.
Poland's state election commission PKW officially reported on Monday morning that Karol Nawrocki, backed by a conservative right-wing party Law & Justice (PiS), has won the second round of the presidential runoff with 50.89 percent of the vote. Current main coalition's ruling party candidate Rafal Trzaskowski was supported by 49.11 percent of voters. The turnout was 71.63 percent.
Erste analysts note that there are suggestions in the Polish press that Prime Minister Donald Tusk may ask parliament for a vote of confidence following Karol Nawrocki's victory in the presidential election.
In their view, the chances of victory for the right-wing parties (PiS and far-right Konfederacja) in the parliamentary elections in two years' time have clearly increased.
According to analysts, the risk of turbulence in the ruling coalition has risen. It is unclear how Civic Platform's coalition partners will behave, whether, for instance, Szymon Holownia (leader of Poland2050 and co-founder of a conservative conglomerate Trzecia Droga) will agree to hand over the position of Poland's parliament lower house Sejm's Speaker to left-wing party Nowa Lewica's leader Wlodzimierz Czarzasty as agreed.
"The government is facing a growing budget hole in the coming months (risk to banks), which will require unpopular decisions. The condition of the mining industry (JSW, PGG) needs to be repaired. Unpopular decisions may also extend to Grupa Azoty struggling with liquidity problems," an analyst at Erste Jakub Szkopek wrote in this morning's report.
"Nawrocki's win is likely to mean slightly higher interest rates, although recent inflation data and an expected reduction in gas prices make this not an obvious conclusion. In any scenario, we see banks, especially those controlled by the Treasury, as a high-risk sector. Foreign investors may turn away from the Polish stock market for some time," he added.
The managers at the mutual funds company VIG/C-Quadrat TFI pointed out that Karol Nawrocki's win means the maintenance of a certain stalemate in the government-presidential relationship.
"(...) which is likely to be perceived slightly negatively or negatively by foreign institutional investors, as it could herald changes in the voting preferences of Poles in the near future," senior fund manager at VIG/C-Quadrat TFI Marek Kazmierczak assessed.
"What this means for equity markets is that with valuations (for the Price/Book Value ratio) approaching two standard deviations above their 10-year average - the likelihood of high returns being realised from the domestic equity market and partial capital outflows has increased greatly," he added.
In his view, in the short term, this could mean declines in the domestic equity market.
"In particular, this applies to companies in the WIG20 index," Kazmierczak wrote.
Moreover, according to the manager, the shockingly effective attack by Ukrainian troops on Russian airfields also means that the risk of a further escalation of the conflict is increasing and will prolong any truce or peace talks.
"This could mean an increase in the risk premium for the domestic equity market (i.e. an additional reason to sell equities)," he pointed out.
pr/ ao/
