Poland is among the few countries in Europe that managed to dodge
the European meltdown thanks mainly to its well-controlled
financial system. Now that the headwinds in the Eurozone have
subsided, Poland has resurfaced as a wise bet in the emerging
Europe space. This is especially true in light of the Polish
Central bank’s recent raise in GDP and inflation forecast for the
next two years.
Central Bank’s Upbeat Projections
After a reduced outlook of 1.1% offered in July, the Polish Central
bank lifted the GDP growth projection for this year to 1.3% while
the benchmark interest rate was fixed at 2.5%. The outlook for 2014
was moved up to 2.9% from 2.4% while the same for 2015 went
northward to 3.3% from 3% (see Poland ETF Investing 101).
The central bank believes that the forecast upgrade came on the
back of rising estimates of economic growth abroad,
better-than-expected use of EU funds in 2014-2015 and the new
financial framework for 2014–2020.
A rise in exports as well as domestic consumption were the main
drivers of optimism in Poland. As per Markit, continued recovery in
business conditions was noticed in the region as evident from the
encouraging HSBC Poland Manufacturing PMI numbers that were above
the threshold mark of 50.0 for four successive readings in
October.
Export orders also increased in October, reflecting five straight
months of growth and the longest run in nearly two and-a-half
years. Growing business activity in Germany – one of Poland’s
largest export market – also led to the bright outlook.
The country’s other major trading partners are also showing a
rebound. Total new domestic and foreign order growth showed the
second-fastest step up in two and- a-half years since September
(read: Poland: A Better Eastern Europe ETF?).
Inflation for this year is forecasted to inch up to 1% from 0.8%.
The projection for next year was elevated to 1.7% from 1.2% and for
2015 it was raised to 1.9% from 1.5%. The authority attributed the
increase to shrinkage in negative output gap and rising wages, both
which will lead to a pickup in inflation.
Since 2004, the National Bank of Poland has followed an inflation
target of 2.5%, plus or minus one percentage points. Though the
current projections are far from the target level, the economy is
definitely heading toward NBP’s goal.
Is All Well for Poland Ahead?
While this is a good start, some issues remain. The inflation
forecast is nowhere near the targeted level of more than 2% and
policy makers may not to opt for further rate cuts, thus putting an
end to easy monetary policy.
Meanwhile, though the current unemployment rate fell 100 bps since
April, it is still quite high at 13.0% (as of September 2013)
stunting the nation’s growth.
Market Impact
Given this slow-but-steady scenario, Poland emerges as a preferred
location for investment as long as Europe investing is concerned.
So for investors willing to buy in on Poland’s ruffled but
rebounding economy, we have briefly highlighted two ETFs that track
the country and could be interesting options:
iShares MSCI Poland Capped ETF
(EPOL)
EPOL is simply the most popular Poland ETF on the market, as it has
over $256.4 million in AUM, and an average daily volume of 300,000
shares. The product tracks the MSCI MSCI Poland Investable Market
Index, charging 61 basis points a year from investors (see Europe
ETF Investing 101).
With 43 stocks in its basket, this fund from iShares puts as much
as 63.08% of its total assets in the top 10 holdings, suggesting
high concentration risk. Financials actually make up roughly half
of the portfolio, leaving around 13% for both materials and energy
followed by 9% for utilities.
Shares of EPOL gained roughly 12.3% in the last one-year period
ended September 30, 2013 versus the broader emerging market fund
iShares MSCI Emerging Markets ETF (EEM) gaining
only 0.43% and broader European fund
Vanguard FTSE Europe
ETF (VGK) adding about 24.8%. EPOL is now currently
trading slightly below its 52-week lows.
Market Vectors Poland ETF
(PLND)
The fund looks to track the Market Vectors Poland Index holding 29
securities in its portfolio and charging investors 61 basis points
a year in fees for exposure (read: Play a Resurgent Europe with
These ETFs).
PLND also puts heavy focus on financials, with as much as 40%
exposure, followed by a 14% allocation to energy, 12% coverage in
utilities and 10% in materials.
PLND sees a paltry volume of around 22,000 daily, while the ETF
returned more than 23.0% to shareholders in the last one year (as
of September 30, 2013).
Bottom Line
While the picture is not as rosy as one might think, the country is
on the right track. With recovery showing up in Europe, better
economic indicators for Poland will likely be on the horizon.
However, the country strongly needs to work on the unemployment
front to ease out major economic concerns, though the current
growth trajectory should help with this goal.
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ISHARS-MS POLND (EPOL): ETF Research Reports
MKT VEC-POLAND (PLND): ETF Research Reports
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