Since yesterday, some contributors within the Polish market haven’t absolutely understood what might have occurred that led to such a fast sell-off of shares of Polish corporations. Concurrently shares have been getting cheaper, Polish bonds started to get dearer in a short time, as proven by the TBSP index or the drop in profitability in Poland.
As a rule, falling yields, which might happen, for instance, because of decrease inflation and rising expectations of rate of interest cuts, are good for shares. However now yields have fallen… and shares have fallen too. What occurred?
There are various indications of a capital rotation as a part of diversification from dangerous property (shares) to secure property (bonds) as a result of enhance in geopolitical danger as a result of appointment of JD Vance as US Vice President. JD Vance needs to finish the battle in Ukraine instantly, most likely by partially dismembering it, and naturally he needs cash for the safety of different nations by the USA. In brief, both Europe will arm itself by itself, or the US can pay greater than earlier than, which in both case will increase geopolitical uncertainty.
It is usually value remembering that in Poland, on the flip of 2024/2025, the height of GDP development year-on-year and the native peak of inflation development year-on-year will coincide. Then, inflation is to fall and GDP dynamics is to fall as nicely, which suggests the disinflationary part of the financial slowdown.
From the angle of the financial cycle, there isn’t a room for shares at this stage, however there may be undoubtedly room for bonds. Maybe the geopolitical matter was the set off for the good rotation of asset lessons on the Polish market, which is per the expansion of uncertainty and the financial cycle.
The Polish złoty, in flip, was ricocheted off by home demand for bonds relative to shares, which lowered bond yields and raised the unfold, e.g. US10Y – PL10Y. The alternate charge solely adjusted to decrease market rates of interest in Poland and for the time being there aren’t any indicators of capital flight.
It’s value remembering that enormous gamers are at present rotating to high-interest bonds, relying on a decline in inflation from 2025 and relying on potential earnings from optimistic actual charges with out incurring danger.
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