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After a selloff in August, Polish stocks are the world’s worst equity performers this year, highlighting their vulnerability to Europe’s energy crisis as well as fears of more government intervention.
Warsaw’s WIG20 index is heading for an 11% decline in August, the biggest drop among 92 major global equity gauges tracked by Bloomberg. Polish stocks have sunk 32% this year, on track for their worst showing since the 2008 crisis, and are trading at the lowest valuations relative to peers in history.
The selloff has been amplified by the retreat of utilities, with the country’s biggest electricity company PGE SA dropping 30% this month. The scarcity and surging costs of coal -- the main fuel for Polish power production -- is trimming profits as power producers’ output is largely tied up in longer-term contracts where prices can’t be immediately adjusted to market levels.
Uncertainty over how the state will seek to reduce the impact of higher prices on households and key companies is also keeping investors away from utilities. Meanwhile, banks have dropped this year as the government introduced costly mortgage moratoriums to quell public anger over fast-rising borrowing costs.
The macro picture hasn’t been so gloomy in years, with war raging in neighboring Ukraine and inflation surging to 16.1% in August, the highest level since 1996. The economy is set to slow and may enter a technical recession amid weaker demand from local consumers and Poland’s main trading partners in the European Union.
All of this means that WIG20 companies are trading at 5.8-times this year’s projected earnings, the lowest valuation since the index was launched in 1994.
A rebound is unlikely until investors get a better sense of how Europe will survive this winter’s energy crisis, when cuts in Russian gas supplies will have most impact, according to Rafal Janczyk, a fund manager at TFI Allianz Polska SA.
"Foreign investors are worried about Poland’s status as a frontier country to the war in Ukraine and state interventions in the biggest-listed companies,” Janczyk said. "Meanwhile, Polish funds lack inflows from clients, who are instead lured by higher interest rates.”
