When the Swiss National Bank (SNB) rattled global markets last week by announcing it was scrapping the franc’s peg to the euro, the Swiss currency’s subsequent surge claimed plenty of victims from hedge funds to currency brokers that were on the wrong side of the Swissie’s spike.
Count Poland exchange traded funds among those victims. Last Thursday, the day of the SNB announcement, the iShares MSCI Poland Capped ETF (NYSEArca: EPOL) and the Market Vectors Poland ETF (NYSEArca: PLND) were two of the worst-performing non-leveraged ETFs on the day. Over the past week, the two Poland ETFs are both down more than 6.5% and on Monday, EPOL and PLND were two of less than 30 ETFs to hit new 52-week lows. [Swissie Surge Felt Across ETF Space]
The problem for EPOL, PLND and, more importantly, the broader Polish economy is that the country is home to $35 billion worth of franc-denominated mortgages and that is not a good thing when the CurrencyShares Swiss Franc Trust (NYSEArca: FXF) is up 16.3% in just the past week.
“Finance Minister Mateusz Szczurek is meeting with central bank Governor Marek Belka, financial and antitrust regulators as well as bank executives after Croatia proposed to fix the exchange rate on similar franc loans to help borrowers. Prime Minister Ewa Kopacz asked regulators to check whether loan contracts take into account negative interest rates while her adviser warned banks against demanding additional collateral after the value of the loans calculated in zloty jumped,” reports Piotr Skolimowski for Bloomberg.
Franc-denominated mortgages in Poland are a relic of pre-global financial crisis days. After the zloty, Poland’s currency, tumbled during the crisis, Polish banks ceased offering mortgages denominated in francs.
However, franc-denominated mortgages issued prior to 2008 remain in use, underscoring the vulnerability of Polish banks and borrowers to ongoing strength in the Swiss currency. That scenario has already proven problematic for EPOL and PLND because the average weight to the financial services sector for the two ETFs is about 45.5%. [Poland ETFs Try to Stand Tall]
Since the SNB announcement, Polish bank shares have tumbled “with Getin Noble losing 21 percent, Millennium sliding 12 percent and MBank falling 11 percent. PKO Bank dropped 8.9 percent,” according to Bloomberg.
PKO Bank is largest and second-largest holding, respectively in EPOL and PLND. The stock accounts for nearly 12% of EPOL’s weight.
iShares MSCI Poland Capped Investable Market ETF
