Polish Zloty, Stocks Lead East Europe Rally on Government Help

Feb. 19 (Bloomberg) -- Poland’s zloty, stocks and bonds led a rally in east European markets after the government pledged to support the currency and reaffirmed its commitment to adopt the euro in 2012.

Warsaw’s benchmark stock index soared the most in almost three months, the zloty jumped as much as 2.9 percent and government bond prices rose as Deputy Finance Minister Ludwik Kotecki told Gazeta Prawna the currency will strengthen in May or June as the country plans to join the euro. Prime Minister Donald Tusk said today the currency must be protected “at any cost.”

The Czech koruna and Hungarian forint also advanced as Goldman Sachs Group Inc. said it ended bets on a further depreciation and a Czech newspaper report signaled the central bank may enter the market.

“The zloty is setting an upbeat tone for the region’s currencies on the intervention and euro-adoption plans,” said Marcin Grotek, an analyst at Raiffeisen Bank in Warsaw. “We’ve also heard verbal intervention in the Czech Republic, and the Hungarian government is talking about unconventional ways to defend the forint. All that is helping eastern European markets gain.”

The zloty strengthened to 4.6799 per euro at 4:33 p.m. in Warsaw. Poland will continue to sell euro funds from the European Union on the interbank market, PAP newswire reported, citing Finance Minister Jacek Rostowski. Adopting the euro is the “best remedy” for the economy amid the global financial crisis, he told parliament.

Best Performer

The Polish currency was the best-performer among emerging- market counterparts in the past two days, advancing 5.4 percent. It rebounded from an almost five-year low on Feb. 17 after Moody’s Investors Service said banks with east European subsidiaries may face rating downgrades.

The gain in government debt pushed the yield of the five- year note 2 basis points lower to 5.89 percent. Bond yields move inversely to prices.

“Government debt prices are gaining on the zloty’s advance, though liquidity is still low,” said Maciek Slomka, head of fixed income in Warsaw at Bank Pekao SA. “The euro sales by the government, comments on euro entry plans and the Goldman report pushed the markets up.”

The Czech koruna advanced as much as 1.5 percent after Mlada Fronta Dnes newspaper cited central bank Deputy Governor Miroslav Singer as saying he would not rule out further use of monetary policy tools, including verbal intervention, to support the currency. The koruna was last 0.6 percent higher at 28.770 per euro.

‘Non-Conventional Intervention’

The Hungarian forint jumped as much as 1.4 percent and traded at 302.00 per euro, compared with a record low of 309.71 two days ago. Hungarian Prime Minister Ferenc Gyurcsany said yesterday he asked central bank President Andras Simor and Finance Minister Janos Veres to seek a “non-conventional intervention opportunity that can help in the defense of the Hungarian forint.”

The euro snapped three days of losses against the dollar on speculation German Chancellor Angela Merkel will signal Europe’s largest economy plans to help ease the financial turmoil in the region.

Goldman recommended closing a trade betting the Polish, Hungarian and Czech currencies will decline further.

Goldman View

“We have long had the view that CEE3 currencies will likely underperform on the basis of unsustainable external imbalances,” London-based analysts Thomas Stolper and Themos Fiotakis at Goldman Sachs wrote in a note sent to clients late yesterday. “But after the rapid depreciation in recent weeks and months we now see several factors that make short positions in eastern European currencies less of a one-way bet.”

Poland’s WIG20 Index rallied 68.16, or 5.1 percent, to 1,405.94, as a rebound in the zloty boosted financial shares, calming concerns about provisions linked to currency options. Hungary’s BUX Index gained 2.9 percent, the most since Jan. 6, and the Czech PX Index rose 4.5 percent, the most in three months.

“The currency rebound pushed the banks up, no doubt about it,” said Marek Juras, head of equity research at Bank Zachodni WBK SA in Warsaw. “That brought some relief about earnings.”

The financial industry’s WIGBANK Index jumped 8.5 percent, the biggest one-day gain in almost three months as Rostowski said the Polish banking system is “healthy.”

Polish Banks

Bank Pekao SA, Poland’s biggest lender and a unit of UniCredit SpA, soared 9.85, or 15 percent, to 77.7, climbing from a seven-year low. PKO Bank Polski SA, the second-largest, gained 1.18 zloty, or 6 percent, to 21. BRE Bank SA, controlled by Commerzbank AG, increased 10.5 zloty, or 11 percent, to 107.5.

Banks led declines this year in Polish equities as they raised provisions for failed bets on currency options and the economy braces for its worst slowdown since 2002. The zloty’s slump compounded problems for companies that bought options from banks last year to bet on an increase in the currency.

Poland’s financial services regulator last week almost tripled its estimate of losses from option deals to as much as 15 billion zloty ($4.1 billion). Polish banks may have to write off as much as 2.25 billion zloty because of companies’ potential losses linked to currency options, the regulator said Feb. 10.

Source: Ewa Krukowska, Pawel Kozlowski

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