WARSAW (Thomson Financial) - Polish financial markets lost ground today after the sacking of a deputy prime minister late yesterday plunged the country into political crisis and opened the door to new elections, possibly as early as this autumn.
The zloty fell around half a percent against the euro, while the stock exchange's main gauges slumped almost 2 pct as markets awaited confirmation from the populist Self-Defence party it was leaving the ruling coalition.
But markets soon regained a foothold, with losses capped by Prime Minister Jaroslaw Kaczynski's promise that any decision on the future of the minority government would wait until September, giving markets the prospect of two months of relative calm.
Analysts also said the departure of Self-Defence, and even elections themselves, could prove a positive for state finances and economic policy in the longer term.
"For one, markets have got very used to Poland's cyclical political crises, so it is not that big a shock," said Marcin Mroz, chief economist with Fortis Bank in Warsaw. "Secondly, this crisis will not be over in a hurry. The worst it may do is take some of the appreciation pressure off the zloty."
At 1532 CET, the blue-chip WIG20 index was down 1.83 pct at 3,811.23 pts, while the broad-based WIG was 1.62 pct lower at 66,196.73 pts.
Chief losers included stocks which last week led the bourse to fresh all-time highs: metals group KGHM and top oil refiner PKN Orlen, as well as the country's leading banks PKO BP and Pekao.
Polish stock markets have boomed this year as the economy surged to post decade-high growth of 7.4 pct in the first quarter.
The zloty has also drawn support from two central bank interest rate rises as well as expectations of further hikes as price and wage pressures continues to build.
Analysts, however, have a dim view of the ruling coalition, which has failed to push ahead with administrative reforms and welfare spending cutbacks that international institutions say are needed to secure long-term growth.
Opinion polls currently suggest the most likely outcome of any election would be a leftist-liberal pact favoured by markets over the current administration.
Politics was just an excuse for a profit-taking, as the valuations have been stretched," said John Lomax, equity strategist at HSBC Securities in London. "I'm still 'neutral' on Polish stocks and I don't think politics make a great deal of a difference. Especially since it's hard to imagine a worse situation post-elections."
adrian.krajewski@thomson.com +48 22 447 2430
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