Poland's New Geopolitical Reality: Defense and Energy Plays in a Eurosceptic Era

The narrow victory of Karol Nawrocki in Poland's presidential election signals a seismic shift in the country's foreign policy, with profound implications for defense and energy investments. As Poland pivots toward a nationalist, Eurosceptic agenda under Nawrocki and aligns with Hungary's Viktor Orbán, the region's geopolitical landscape is being reshaped. This realignment presents lucrative opportunities in domestic defense contractors and energy firms while posing risks to EU-funded projects.

Defense Sector: A Boom for Nationalist Contractors

Nawrocki's election solidifies Poland's position as a frontline state in Europe's security calculus. With defense spending already at 4.12% of GDP—among the highest in Europe—and a stated goal to modernize military capabilities, domestic defense firms stand to benefit handsomely. Key beneficiaries include:

1. PGZ (PGZ.WA): Poland's state-owned defense conglomerate, which manufactures armored vehicles, artillery, and missile systems. The firm is a direct beneficiary of Poland's $45 billion defense modernization plan, including purchases of U.S. HIMARS rocket systems and F-35 jets.
   

2. MBT (MBT.WA): A leading manufacturer of armored vehicles, MBT's exports to NATO allies will likely expand as Poland seeks to boost its military footprint.

The Poland-Hungary axis adds another layer of opportunity. Orbán's endorsement of Nawrocki signals a strategic partnership to counter EU-centric policies, potentially leading to joint defense projects. For instance, shared investments in cyber defense systems or border security infrastructure could favor firms like Raytheon Technologies (RTX) and Thales Group (THGS.PA), which already supply NATO-standard equipment to both nations.

Energy Sector: Fossil Fuels and LNG Take Center Stage

Nawrocki's “energy sovereignty” agenda prioritizes self-reliance over EU climate mandates, creating tailwinds for traditional energy sectors. Poland's pivot to U.S. liquefied natural gas (LNG) and coal—despite EU opposition—offers clear investment avenues:

1. PGNiG (PGN.WA): Poland's largest gas utility is expanding its LNG terminal capacity at Świnoujście, a project critical to reducing reliance on Russian gas. The firm's shares are undervalued compared to EU peers due to lingering regulatory risks but offer asymmetric upside if the government backs fossil fuels.

2. Tauron (TAUR.WA): A major coal-fired power producer, Tauron benefits from subsidies under Poland's delayed green transition. While long-term risks from EU carbon border taxes (CBAM) remain, short-term gains are likely as the government prioritizes energy security.

Geopolitical Risks: EU Discord Creates Winners and Losers

The realignment carries significant risks, particularly for projects tied to EU funding. Over €168 billion in cohesion funds are frozen for Poland and Hungary due to rule-of-law disputes, with releases contingent on reforms Nawrocki is unlikely to deliver. This creates two clear investment strategies:

• Avoid EU-Dependent Sectors: Renewable energy projects, infrastructure ventures, and tech firms reliant on EU grants face prolonged uncertainty. The Siemens Gamesa (SGRE.MC) wind turbine business, for instance, may see delays in Polish projects.
• Overweight Domestic Plays: Firms insulated from EU discord, such as defense contractors and fossil fuel utilities, are safer bets.

Investment Recommendations

1. Long Positions:
2. PGZ (PGZ.WA): A core holding for exposure to defense modernization and NATO interoperability.
3. PGNiG (PGN.WA): Leverage LNG infrastructure growth and coal subsidies.

4. U.S. Defense Giants: Boeing (BA) and Lockheed Martin (LMT) will supply critical equipment under U.S.-Polish defense deals.

5. Hedges Against EU Discord:

6. Short EU Green ETFs: iShares Global Clean Energy UCITS ETF (A1E7Y6) may underperform as EU funds remain frozen.

7. Polish Government Bonds: The 10-year PLN bond offers yield stability amid currency volatility.

8. Avoid:

9. EU-funded green projects (e.g., offshore wind farms).
10. Firms reliant on Brussels subsidies, such as CD Projekt (CDR.WA).

Conclusion: A New Era of Geopolitical Alpha

Poland's geopolitical realignment under Nawrocki is a game-changer for investors. The defense and energy sectors are poised for growth as the country doubles down on self-reliance, while EU discord creates opportunities for those willing to bet on nationalist resilience. While risks exist—from CBAM penalties to currency swings—the rewards for positioning early in PGZ, PGNiG, and U.S. defense contractors are substantial. This is a moment to buy the dip in Polish equities and overweight domestic champions as Central Europe's fault lines deepen.