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Equity and bond market

Annual Report 2019 > Equity and bond market
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2019 was a prosperous year for global financial markets. The MSCI ACWI - All Country World Index - (consisting of stocks from 49 different countries, of which 23 are classified as developed markets and the remaining 26 are considered emerging markets) climbed 24.0% y/y, namely a level similar to the very robust year of 2017 during which strong growth was prevalent in almost all asset classes. This trend was reflected by the main stock markets in the US, London, Frankfurt and Paris as their main indices posted growth in excess of 25% y/y. Even events like the protracted trade war between the US and China and the economic crisis in Argentina were unable to affect positive sentiment and the appetite for risk.

MSCI ACWI ($) 2017-2019 


The global economy’s most important central banks made attempts to normalize monetary policy as early as 2018. The American central bank, the FED, hiked interest rates four times, while announcing another two rate hikes in 2019 and continuing to pursue a quantitative tightening operation, i.e. reduce its balance sheet by curtailing the reinvestment of maturing bonds.

In March 2019 this strategy changed materially when the FED withdrew from additional hikes of interest rates, and in July 2019 rate cuts were revisited (three rate cuts of 25 basis points each in 2019). Quantitative easing was also resumed in October 2019, whereby the balance sheet of the US Federal reserve began to swell again.

US fed funds rate (upper limit)


The measures taken by the ECB also indicated a loosening policy. In early June 2019 ECB’s Governing Council announced that ECB’s prime interest rates will remain at their current level at least until H1 2020. A mere few weeks later the President of the ECB stated that it would be possible to continue reducing interest rates and renew quantitative easing (QE), which transpired in September 2019.

The measures taken by central banks in 2019 supported the S&P500 performance. At the end of 2019, S&P500 had risen 29.6% SITUATION ON THE FINANCIAL MARKETS.

WIG20 versus the MSCI EM and DM and S&P500 market indices



Vibrant market conditions in the US and Europe also translated into growth on emerging markets. In 2019 the MSCI Index moved up 15.4% y/y, thereby presenting relatively greater strength than the WIG20, an index of the Warsaw Stock Exchange’s largest companies.

MSCI Emerging Markets / WIG20


The WIG index gained 0.3% y/y in 2019 while WIG20 backtracked 5.6% y/y. The weakness of local indices was related among other things to portfolio conversions in open-end pension funds (OFE) (due to transformations in the pension system) and the escalation of banking sector’s problems associated with their Swiss franc loan portfolios. Revisions to the MSCI emerging markets index also had an adverse impact; revisions were made three times in 2019: in May, August and November. All these changes precipitated a decline in weight of Polish equities in this index, chiefly to the benefit of Saudi Arabia and China. According to analysts’ estimates, the incremental supply may have run into several billion Polish zloty.

The measures taken by the major central banks revealed the phenomenon of negative interest rates on global debt which surpassed the record-breaking amount of USD 17 trillion in Q3 2019. Tensions between the US and China and the threat of a “hard” Brexit aggravated this phenomenon. At the end of 2019 the value of debt securities with negative yields was USD 13.2 trillion.

Value of debt securities with negative yields ($ million)

Source: Bloomberg – Barclays negative yielding index

Medium-term and long-term treasury bond yields fell in 2019. The behavior of Polish 10-year treasury bonds was largely correlated with changes in the yields on 10-year bonds on the core markets. At the same time, during the year the spread between Polish and German 10-year treasury bonds tightened by 26 basis points, which resulted partly from the robust fundamentals of the Polish economy against the backdrop of European economies. Throughout 2019, the yields on 10-year treasury bonds slumped by 78 bps from 2.85% to 2.07%. The yields on 5-year treasury bonds declined by 48 bps and stood at 1.81% at the end of the year, while the yields on 2-year bonds increased by 16 bps to 1.50% during the year. The yield of Polish debt treasury securities with a one-year maturity increased by 7 bps, reaching 0.98% at the end of the year. SITUATION ON THE FINANCIAL MARKETS.

WIG / Treasury bonds (10 year)