Why Poland's zloty has jumped to the top spot against the dollar, defying a global markets sell-off
- The Polish zloty is this week's top performing currency, rising 2.4% since national elections were held.
- The votes put the pro-European coalition in power, bringing the potential to unlock EU funding.
Poland's currency and stocks have defied the emerging-market slump, as investors flocked back to the country amid political shifts in Warsaw.
The zloty is up 2.4% against the US dollar for the week, outperforming all 30 of the other major global currencies in that span, according to Bloomberg data. As of Friday, zloty traded at 4.21 against the dollar.
Alongside the zloty's strength, Poland's WIG20 stock index gained nearly 3% this week, contrasted by a 2.6% slide in the equity benchmark for emerging markets.
The upswing is especially notable given the headwinds. A historic Treasury market sell-off has sent US bond yields soaring, lifting the dollar and weighing on other currencies. Meanwhile, the threat of a larger Middle Eastern conflict has shifted capital toward lower-risk assets.
The rally in Poland's markets came after last Sunday's national elections, which are expected to push the populist Law and Justice party, or PiS, out of power.
A pro-European coalition, which could have the potential to unlock new funding and investment opportunities in the country, is seen replacing the PiS.
While PiS garnered the most votes, three opposition parties together made up 54% of the ballot, putting the block in a position of power.
This PiS' eight years in power were notable for its clashes with EU policy, friction with Ukraine, and a medley of national reforms, including the politicization of the country's judicial and media landscape.
Likely to be led by Donald Tusk, a former European Council President, opposition leadership will look to dismantle many of these overhauls, as well as rebalance Poland's ties with its European partners.
In doing so, investors could expect $37 billion in EU funding to be made available to Poland, aid that was previously blocked by Brussels in protest of PiS' judicial reforms.
Tensions between Poland and Ukraine — where Warsaw denied Kyiv further weapon deliveries on a grain deal dispute — should cool, and may even help boost Polish GDP once reconstruction efforts take hold. Meanwhile, as Poland returns to the European mainstream and aligns itself to EU governance standards, more portfolios are likely to add on Polish assets.