Poland’s stocks and bonds and its złoty jumped on Monday as investors bet that pro–European Union parties were on course to defeat the incumbent nationalists following the country’s general election.
In Warsaw, the WIG 20 equity index
XX:WIG20
EPOL
rose 6% to a two-month high, while the yield on Poland’s 10-year government bond fell 15 basis points to 5.68%. Bond yields move in the opposite direction to prices. The Polish złoty
USDPLN,
rose 1.8% versus the U.S. dollar to 4.237 złoty.
Early results and two exit polls suggested Civic Platform won 31% of votes against the ruling Law and Justice party’s 36.6%. But together with its coalition partners Civic Platform is on track to secure a majority 248 of the 460 seats in the Sejm, the lower house of Poland’s parliament.
If confirmed by final results due on Tuesday, it would likely mean the end of eight years of rule by the Law and Justice, or PiS, an ultraconservative and populist group that through its leader, Jarosław Kaczyński, developed a fractious relationship with the European Union and, according to critics in Poland and abroad, put democracy at risk.
Context: Polish opposition leader Tusk declares victory after exit poll shows ruling conservatives lose majority
Civic Platform, in contrast, is led by former European Council President Donald Tusk, and his mooted victory points to many Poles wishing for a more collegial partnership with the EU — a reset that may also allow access to tens of billions of euros that had been withheld by the EU because of PiS’s infringing the bloc’s rule-of-law standards.
The Polish currency has been Europe’s best performing emerging-market currency against the euro over the past month, according to Bloomberg, as polls started to show that the PiS could be defeated and traders positioned for a more hawkish central bank.
“We expect the central bank reaction function to now turn more hawkish as Governor Adam Glapinski’s voting record has previously been more hawkish under a Civic Platform-led government,” Goldman Sachs economist Kevin Daly wrote in a note.
Rafal Benecki, chief Poland economist at ING Bank, noted that it could take months for Civic Platform to form a new government, and there are concerns “being raised as to whether the transfer of power will be peaceful and in accordance with the rules.”
But ultimately he believes the transfer will occur, he said, and this will encourage foreign investment into the EU’s sixth biggest economy.
“The outcome of the elections suggests that it will be easier to finance the budget’s high borrowing needs next year. Financial markets assumed that an opposition win would mean a rapid unlocking of the EU funds, and all opposition parties agree that this is a priority,” said Benecki.
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