World Economy

Asian Investors Unruffled by Polish Turmoil

Asian Investors Unruffled by Polish TurmoilAsian Investors Unruffled by Polish Turmoil

Political turmoil in Poland isn’t stopping Asian investors from boosting holdings in the country’s debt. They bought more zloty bonds in the past two months even as a surprise presidential victory for the opposition party exacerbated a bond selloff since May, Poland’s Finance Ministry said last week.

Asian investors from Japan to Thailand, including central banks, almost doubled their positions in Polish bonds in the 12 months to April, ministry data show, Bloomberg reported.

Asia has been filling the void left by US and European investors who pulled out as prospects for higher Federal Reserve interest rates damped demand for riskier assets. Speculation is growing that Poles will vote out a government in the fall that steered the economy through the global financial crisis without a recession–a fact that helped drive the premium investors demand to hold Polish debt instead of benchmark German notes to a 13-month high in June.

“Asian investors are taking a very long-term view,” Peter Attard Montalto, an emerging-market strategist at Nomura International Plc, said by phone on June 25. “They may take a slight pause, but also see more attractive levels to enter now. Things can resume more speedily after the elections.”

Polish bonds are headed for an unprecedented fifth month of declines, with yields on benchmark 10-year notes climbing to a 10-month high of 3.32% on June 17. That sent the premium over German bunds to 251 basis points. The bonds pared losses last week, with the rate at 3.23% on Friday.

 Long Term

Investors from Asia “are probably the most long-term oriented players in the local bond market,” Piotr Dmuchowski, head of financial institutions sales at HSBC Holdings Plc’s Polish unit in Warsaw, said by e-mail on June 26. “In the recent weeks we haven’t actually seen any significant change in the activity from Asian accounts.”

More than two-thirds of the inflows from Asia were generated by central banks, according to HSBC.

Still, some investors are concerned that Poland and other countries in emerging Europe may be negatively affected from stimulus efforts by the European Central Bank that could weaken the euro, Rajeev de Mello, who oversees about $10 billion as head of Asian fixed income at Schroder Investment Management Ltd. in Singapore, said by e-mail on Friday.

Investors from Asia increased holdings of zloty bonds to 47 billion zloty ($12.6 billion) at the end of April, or about a quarter of all foreign ownership, from 26 billion zloty a year earlier, according to finance ministry data. Institutions from the US and the euro area both reduced their exposure by a total of 15 billion zloty in the same period.