Polish Equity Risks and Election Uncertainty: Sector-Specific Threats and Strategic Hedging

The May 2025 Polish presidential election presents a critical crossroads for investors in Polish equities, with currency volatility and sector-specific regulatory shifts poised to reshape the investment landscape. With frontrunners like Rafał Trzaskowski (Civic Platform) and Karol Nawrocki (PiS) locked in a battle over Poland’s EU alignment, migration policies, and judicial reforms, the election’s outcome could trigger abrupt shifts in currency exposure and sector valuations. Add to this the wildcard candidacy of far-right populist Sławomir Mentzen (Confederation), whose inflammatory rhetoric could destabilize polling leads and amplify geopolitical risks. For investors, the stakes are clear: sector-specific vulnerabilities tied to regulatory, currency, and geopolitical factors demand immediate hedging strategies or selective short positions.

The Election’s Currency Crossroads

Poland’s zloty (PLN) has long been sensitive to political instability, but this election’s high stakes could amplify its volatility. A Mentzen surge—or even the perception of one—would likely trigger capital flight, given his anti-EU stance and calls for extreme border measures. A weaker zloty would disproportionately impact financial equities, as Polish banks and insurers hold significant EUR-denominated debt.

Already, the PLN has weakened 8% against the euro since early 2023 amid PiS’s judicial clashes with Brussels. Should Mentzen’s support grow, the zloty could depreciate further, raising borrowing costs for zloty-heavy sectors like real estate and consumer finance. Meanwhile, a Trzaskowski victory—a pro-EU centrist—might stabilize the currency but introduce regulatory risks in energy and infrastructure.

Sector-Specific Vulnerabilities: Energy, Finance, and EU Infrastructure

Energy: Regulatory Policy Crosshairs

Poland’s energy sector faces a pivotal test. Trzaskowski’s Civic Platform has pledged to reverse PiS’s controversial 2015 judicial reforms, which could reignite EU sanctions and pressure on state-owned energy companies like PGE (WIG: PGE). Meanwhile, Nawrocki’s PiS has pivoted toward free-market energy policies but risks backlash over rising utility prices. Mentzen’s anti-EU stance could deepen regulatory uncertainty, deterring foreign investment in green energy projects.

Investors should brace for volatility in utilities and renewable energy firms, particularly those reliant on EU subsidies.

Finance: Zloty Depreciation and Debt Risks

Polish banks like PKO BP (WIG: PKO) and mBank (WIG: MBANK) face dual risks: zloty depreciation and a potential credit crunch if migration policies strain public finances. A Mentzen second-round run could accelerate capital outflows, widening interest rate spreads and squeezing bank margins. Even a Trzaskowski win carries risks: his support for austerity measures to meet EU fiscal rules could dampen consumer lending.

EU-Funded Infrastructure: Geopolitical Ties at Risk

Poland’s EU-funded projects—transport, tech, and defense—total over €25 billion through 2027. A Mentzen or Nawrocki victory could jeopardize these funds if Poland’s EU relations deteriorate. Trzaskowski’s pro-EU stance might preserve funding but introduce cost-overrun risks as he pushes for faster implementation of EU-aligned policies.

Hedging Strategies for Election Volatility

Investors must act preemptively to insulate portfolios:

1. Short Polish Financial Equities: Target banks exposed to EUR-denominated debt (e.g., MBANK) or real estate lenders (e.g., Prologis Poland) if zloty depreciation accelerates.
2. Currency Hedging: Use forward contracts to lock in PLN/EUR rates or invest in inverse ETFs like DBVLU (Deutsche Boerse’s EUR/PLN ETF).
3. Avoid EU-Dependent Infrastructure Plays: Steer clear of construction firms like Mostostal Warszawa (WIG: MOST) unless Trzaskowski’s pro-EU stance solidifies.
4. Regulatory Shorts in Energy: Consider shorting state-owned utilities (e.g., Energa) if PiS’s judicial reforms reignite EU sanctions.

Final Call to Action

The Polish election is not just a political event—it’s a catalyst for currency and regulatory shocks. With Mentzen’s far-right momentum and Nawrocki’s PiS scandals creating unpredictability, investors cannot afford complacency. Act now to hedge against zloty depreciation and sector-specific risks, or risk being swept up in the fallout of one of Europe’s most consequential elections.

The clock is ticking—position yourself before May 18.