Political risk premium on Polish assets is set to increase further

In Poland, opposition Law and Justice (PiS) won yesterday's general election by a wide margin as per exit polls, with an estimated 37.7% of votes, which will get the party 232 of 460 seats in the lower house of parliament. This will be the first time since 1989 that any party alone captures majority. 

Outgoing People's Party (PO) received 23.6% of the votes, which translates to 137 seats. Interestingly, newcomer musician-turned-politician, Mr Pawel Kukiz, did much better than latest surveys had suggested, capturing third position with 8.7% of votes, this means that even if PiS were to capture fewer seats in the final results, the party will have the fallback option of forming a coalition with Kukiz'15, which has always been a natural ally in terms of agenda. 

"The political risk premium on Polish assets is set to increase further as PiS will now feel empowered to pursue the more radical elements of its agenda, including imposing a tax on banks and forcing them to convert CHF mortgages at historical exchange rates, the party will also reverse recent pension reforms by, first of all, lowering the retirement age", says Commerzbank. 

The two parties together will still not have the two-thirds required to change the Constitution, though. The Polish Electoral Commission (PKW) will release official results today in the evening. 

"Poland's fiscal deficit is likely to end up wider in coming years than is currently forecast by the European Commission (e.g. 2.6% for 2016). The first thing the markets will wait to hear after official results are announced is whether or not controversial party leader, Jaroslaw Kaczynski, will himself assume the PM position instead of moderate leader, Beata Szydlo, who had been the face of PiS campaign. The zloty is likely to be volatile in coming days as PiS confirm its post-election agenda", added Commerzbank.