Poland's shares suffer biggest fall in 2 years on pension plan
* Stock market down as much as 6 pct as plan rattles markets
* 10-year bond yield hit one-year high
* SocGen calls government overhaul "blow to confidence"
* JPMorgan sees $3.5 billion flight from zloty bonds
By Marcin Goettig and Pawel Sobczak
WARSAW, Sept 5 (Reuters) - Poland's main stock index suffered its worst fall in two years on Thursday, after a government plan to shift pension assets to the state raised concerns it may undermine markets.
The zloty currency and bonds were also hit as foreign investors worried the plan would significantly curb liquidity and the inflow of new cash to the equity market.
Warsaw's blue chip WIG20 index fell by as much as 6.2 percent in intraday trade, while yields on 10-year bonds hit their highest levels in 12 months.
Poland said on Wednesday it would transfer 121 billion zlotys ($37 billion) in bonds held by state-guaranteed private pension funds to the state and cancel them to curb the public debt, thus reversing a reform from late 1990s.
Representatives of pension funds, which hold assets worth about a fifth of Poland's yearly output, slated the plan.
"This is the largest nationalisation in Poland since 1946," Jaroslaw Lis, fund manager at BPH TFI pension fund, told TVN CNBC broadcaster.
In 1946 the Soviet Union-sponsored communist regime nationalised swathes of the country's economy. In 1989, Poland overthrew communism, moving to a market economy - now central Europe's largest after two decades of rapid growth.
The pension funds, which include international firms such as ING, Aviva, Axa, Generali and Allianz, would be allowed to keep their holdings of stocks, worth 111 billion zlotys at the end of July.
But even some of those stocks would end up in state coffers as the government plans to shift the pension assets to the state and make the public pension vehicle ZUS the sole pensions payer.
Polish President Bronislaw Komorowski, commenting on the plans during an interview for the broadcaster TVN24 said he saw their advantages and disadvantages.
"I will ask experts and lawyers to evaluate the project in the light of the Polish Constitution. That's my duty," he said.
The government would also make further workers' contributions to the funds voluntary, as part of a plan to be implemented by mid-2014, most likely significantly cutting any fresh cash to the equity market.
The drop in Warsaw's broad market WIG index erased over 23 billion from the 537 billion zloty capitalisation of local stocks. The WIG20 ended the day 4.6 percent down.
It has lost 7 percent since Tuesday's close, much more that regional peers already under pressure from a broad pullout of capital emerging markets in recent weeks.
Banks suffered most, with shares in Poland's biggest lender PKO BP down by 5 percent, while the region's top insured PZU tumbled nearly 7 percent.
The zloty lost 0.8 percent on Thursday, underperforming regional peers. Three market sources told Reuters they saw the state bank BGK selling significant amounts of euros on the spot market to prop the Polish currency.
Yields on 10-year benchmark bonds rose 20 basis points to a fresh 1-year high of 4.94 on Thursday.
Poland managed to sell 5.7 billion zlotys in 2- and 5-year bonds on Thursday, but 2-year yields rose by about 50 basis points since last month's tender.
More than $3.5 billion of foreign capital could flee Polish zloty bonds the pension reforms lead to a reduction in Poland's share of world government bond indices, JPMorgan said.
"The most significant local market impact of the Polish pension reforms is likely to come from index-related selling as the weight of Polish government local currency debt in major global bond indices, including Citi's WGBI (World Government Bond Index) and the Barclays Global Aggregate index, is likely to fall," JPMorgan told clients.
"Our base case scenario sees $3.5 billion worth of index-related selling, with risks skewed to the upside."
MORE PAIN TO COME
Societe Generale said the government's plan had "undermined investor confidence", saying it might weaken the zloty even to 4.40 to the euro, about 2 percent down from the current levels.
"It will negatively affect liquidity on the bond market and will make it even more dependent on foreign investors, whose share on the debt market will rise in line with the cancellation of domestic-held bonds," Societe said in a report.
The equity market would likely continue to suffer, because a significant share of current private pension funds members would opt to leave the system, Societe added.
Moody's rating agency said the pension system overhaul was neutral for the country's A2 credit rating, as it will cut state debt but undermine investor confidence.
"Although these changes will hurt domestic capital market liquidity and increase the government's pension-related contingent liabilities, government finances will benefit in the short-term" Moody's Jaime Reusche said.
Finance Minister Jacek Rostowski said on Thursday the plan, which still needs to be approved by parliament and the president, would reduce public debt, as calculated by European Union, by about 8-9 percent of GDP.
The fall in Poland's debt, according to the domestic accounting rules, would be smaller by about 1.5 percentage points. In 2012, this debt stood at 52.7 percent of GDP in 2012.
The pension transfer would likely lower the general government deficit by 0.5 percent of GDP next year from an earlier plan of 3.3 percent, Finance ministry's Chief Economist Ludwik Kotecki said on Thursday. ($1 = 3.2714 Polish zlotys)
- Flights delayed as air pollution hits record in Shanghai
- White House reverses, says Obama met uncle and lived with him during law school
- South Africa mourns Mandela, will bury him on December 15 |
- French launch Central African Republic mission but deaths mount
- Supreme Court to decide on patent protections for software