How might Poland's parliamentary election results affect USD/PLN and WIG20?

13.10.2023 10:26|Analyst Team, Conotoxia Ltd.

According to the latest pre-election polls, it is possible that there might not be eight-year-long United Right government in Poland after the parliamentary elections scheduled for Sunday, 15 October. Along with the prospects of the opposition taking power, there is talk of unblocking funds from the European National Recovery Plan, which could be crucial to the future of the Polish economy. The differences in the polls are insignificant, hence the possible outcome belongs to the realm of speculation. However, let us consider what impact the election results may have on the USD/PLN exchange rate and the WIG20?

Table of Contents:

  1. Growing influence of foreign investors on USD/PLN and WIG20 exchange rates
  2. How does the election affect the WIG20 index and the USD/PLN exchange rate?
  3. A PiS win could push the USD/PLN exchange rate above 5 PLN?
  4. Will the Civic Coalition's win bring in KPO funding?
  5. What will happen to the USD/PLN and WIG20 exchange rates when government self-reliance is not achieved?

Growing influence of foreign investors on USD/PLN and WIG20 exchange rates

This week's trend on the Polish trading floor is strongly consistent with increases on US indices and a decline in the USD/PLN exchange rate. The latest data from the WSE show an increase in the share of foreign investors in the turnover of the Polish stock exchange in the first half of the year. The 65 per cent share is one of the highest in four years, which seems to tell us that Poland is becoming a market of choice for foreign investors.

Wykres WIG20 i SPX

Source: Tradingview

Wykres Udział inwestorów Zagranicznych na GPWSource: WSE, from left: domestic institutional investors, domestic individual investors, foreign investors

How does the election affect the WIG20 index and the USD/PLN exchange rate?

The upcoming elections also appear to be leaving their mark on the stock market. Companies owned by the State Treasury, which account for a significant share of the WIG20 index, appear to be particularly exposed to this risk. In the event of a change of government, board reshuffles and strategy reversals seem possible, which would entail temporary uncertainty. 

It is difficult to identify a clear winner from the most recent polls, hence it is difficult for investors to predict what directions government policy will take in the coming years. Here, it is worth mentioning the study 'Impact of Political Elections on Share Prices on the Warsaw Stock Exchange' by Marek Szymański and Grzegorz Wojtalik, which showed that a historical relationship only exists between the presidential election and the short-term performance of the WIG20 index. It highlights negatively on equities in the five-day period after the vote. In the case of the parliamentary elections we have now, there was a noticeable strengthening of the zloty against the dollar (a fall in the USD/PLN exchange rate) in the ten days following the election. This would mean that we could expect a fall in the USD/PLN exchange rate.

Wykres USDPLN

Source: Conotoxia MT5, USDPLN, Daily

A PiS win could push the USD/PLN exchange rate above 5 PLN?

We are currently considering three main scenarios. The first one assumes a victory for PiS by winning a majority of seats in parliament, which would enable the continuation of current policies. In such a case, the current high rate of economic growth will possibly continue, supported mainly by the weakening of the Polish currency, the loosening of fiscal policy (resulting in an increase in debt) and the strengthening of political relations with the United States. Therefore, there is a high probability that the USD/PLN exchange rate would exceed the 5.00 level during the PiS government. In the longer term, tighter relations with the United States may benefit capital inflows to the WIG20 index.

Sondaż wyborczy w Polsce 2023

Source: Ipsos poll for OKO.press and TOK FM

Will the Civic Coalition's win bring in KPO funding?

In the event that the opposition, whose largest party is the Civic Coalition (KO) led by Donald Tusk, succeeds in forming a government, we may see an increase in market expectations for the unblocking of funds from the EU's National Recovery Plan. This could be a factor favouring the strengthening of the Polish currency. Some voices in the opposition also point to the possibility of accelerating the process of Poland's accession to the euro area, although this still remains a distant prospect given the current economic conditions. However, it is worth noting that foreign policy could possibly shift more towards Germany, strengthening trade ties, among other things, especially as Germany is currently Poland's main trading partner, accounting for as much as 28 per cent of total national exports.

Eksport Polski ze względu na kraje

Source: Tradingeconomics

What will happen to the USD/PLN and WIG20 exchange rates when government self-reliance is not achieved?

The worst-case scenario for long-term growth projections would be instability in government. While the impact of government policy on growth rates, which they seem likely to remain high for the coming years, should instability in government not be overestimated, it is nevertheless difficult to predict potential changes in the event of instability in government, as there are many possible scenarios and solutions, especially regarding foreign policy. The outcome of the elections in the long term may not be of key importance for stock market investors. There may, of course, be isolated differences in the use of state-owned companies to, for example, lower product prices compared to the competition, but isolated instances would not significantly affect foreign investors' seemingly increasing interest in the Polish market from year to year.

Wykres WIG20

Source: Tradingview

 

Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.95% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Like the article?
Share it with friends!


See also:

Oct 12, 2023 9:10 am

US bonds augur a crisis in the West? Rising yields and the consequences

Oct 10, 2023 12:56 pm

Why is the National Bank of Poland increasing its gold purchases?

Oct 5, 2023 2:04 pm

OPEC+ holds the key to market balance. What will the future bring?

Oct 4, 2023 3:03 pm

The 5 companies with the best free cash flow yield, or how to assess investment potential?

Oct 3, 2023 9:17 am

Is Bitcoin quietly beginning a continuation of the bull market?

Sept 28, 2023 2:25 pm

Poland on the list of exceptions: fuel prices lowest in the European Union, but for how long?

76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.