Poland’s equity market is back under scrutiny as the country’s new leaders set their eyes on overhauling an industry that controls one-fifth of local stocks traded in Warsaw.
The country’s pension fund industry, which manages $35 billion in assets, will be reviewed in the second half of the year as the government seeks to “improve the efficiency of their investments,” Deputy Labor Minister Marcin Zieleniecki said an interview on Monday. The nation’s 12 privately-managed funds, which have been active since 1999, were stripped of 51% of their holdings in bonds in 2014, when a previous administration sought to reduce the country’s debt burden, Bloomberg reported.
Polish stocks have lagged behind peers in emerging markets as the government elected in October levied the highest taxes on bank assets in the European Union to fulfill campaign pledges to boost social spending. The latest planned overhaul puts at risk directives for pension funds, which were set up to provide a source of local, long-term financing for the nation’s growing companies as well as capital to businesses abroad in eastern Europe, including companies from cash-strapped Ukraine.
“Investors have been shedding Polish stocks for a while, seeing risk of a massive sell-off of shares held by pension funds after a possible takeover of their assets by the state,” Rafal Benecki, the chief economist at ING Bank Slaski SA in Warsaw, said by phone. “Such proposals, if communicated wrongly, may hit the zloty and other Polish assets.”
Equity Focus
Warsaw’s WIG20 index has dropped 11% since October, compared with a 4.7% slide in the MSCI Emerging Markets Index. Equities haven’t been the only loser, the zloty as weakened 3.5% against the euro this quarter, the third-biggest decline among 24 emerging markets. Polish government bonds have dropped, sending the 10-year yield up 26 basis points to 3.10%, the fifth-biggest increase among peers in the period.
The cabinet may consider broadening investment options for the funds as their present stock-focused portfolios aren’t “efficient,” Zieleniecki said. The previous government took over the funds’ government bond holdings, canceled the debt and banned the institutional investors from purchasing such securities. Meanwhile, Warsaw’s WIG20 index has showed negative returns for three years running.
“The government is aware that the well being of the Warsaw Stock Exchange depends on pension funds,” Zieleniecki said by phone from Warsaw. “But in this shape, the funds aren’t safeguarding future pensioners or investing efficiently.”
