(Bloomberg) -- Polish stocks and the zloty currency dropped as investors used the Eastern European country’s assets as a proxy for escalating risk in the region as Russia widened its scope for using nuclear weapons.
Warsaw’s WIG20 index plunged as much as 3.5%, the biggest drop among key global equity indexes on Tuesday and its largest one-day drop since a global selloff on Aug. 5. The zloty traded 0.5% weaker against the euro, the worst performance among more than 20 emerging-market currencies.
The retreat highlights Poland’s proximity to Russia’s invasion of Ukraine as well as the liquidity of its assets compared with regional peers. The moves are part of a run toward haven assets, such as US Treasuries as well as the Japanese yen and the Swiss franc, with European equities shedding almost 1% and falling to the lowest level since August.
Russian President Vladimir Putin signed an updated nuclear arms doctrine, pledged in September, that allows the country to expand its use of atomic weapons. Meanwhile, a report showed Ukraine had carried out its first strike within Russian territory with Western supplied missiles — escalating a conflict which had repeatedly dented sentiment toward Polish assets.
“With the biggest capital market in the region, Poland is seen as the country near the frontlines, so we are seeing a strong retreat similar to when the war started in 2022,” said Jaroslaw Niedzielewski, head of investment at mutual fund Investors TFI SA in Warsaw. “We hope that it’s a temporary selloff fueled by a final wave of escalation.”
Some investors are betting that the next US administration, led by Donald Trump, will attempt to quickly end the war in Ukraine. A de-escalation of the conflict across Poland’s eastern border could serve as a boon for the country’s stocks, which are trading at a deep discount to their emerging-market peers as well as the Stoxx Europe 600.
The WIG20 has tumbled more than 8% since Nov. 7 amid a string of downbeat data for the $800 billion Polish economy. On Tuesday, financials led the selloff in Warsaw, followed by energy and industrial stocks.
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