Poland is one of the few countries in Europe that has shown an
ability to weather the economic crisis in the euro zone. The
country’s solid economic performance despite the weakness in many
of its neighbors can be attributed to the internal strength of the
economy, and its minimal exposure to distressed southern European
states (Poland ETF Investing 101).
However, the economy, which survived the four years of economic
crisis, is beginning to show new signs of weakness.
Reduced government spending along with waning consumer
confidence resulted in slower growth of the economy in 2012. The
government, in an attempt to scale down the deficit level to EU's
requirement of below 3% of GDP, has made significant cuts in
spending.
Further, lower export demand attributable to the deepening
crisis in the Euro-zone also dampened the growth of the economy to
some extent. Slashed public investment along with stagnation in the
housing market is leading to a deep recession in the construction
sector.
For 2013, the European Commission appears to be a bit cynical on
the outlook of the economy. It anticipates the economy to grow at
the rate of 1.2% in 2013 and 2.2% in 2014.
The projected growth rate has been slashed from the prior
forecast of 1.8% in 2013 and 2.6% in 2014. This is slowest growth
rate expected for the economy in a span of 12 years.
It appears that growth in domestic demand will be undermined by
a weak economic outlook for the main trading partners of the
country. This is expected to affect Polish exports in 2013 (More
Trouble Ahead for Italy and Spain ETFs?).
Rising unemployment levels are also a laggard on domestic
demand. The unemployment rate last month climbed to a six-year high
of 14.2%.
For 2013, the unemployment rate is expected to be at 10.3%. It
is believed that the economy will see some recovery in domestic
demand only in the latter part of the year.
Still, Poland remains a robust option when compared to many of
its peers in the region. Additionally, its projected growth rate is
far in excess of what many other economies are seeing in the area,
suggesting that Poland could still be a great option.
This could be especially true if domestic demand continues at a
decent pace. If this is able to offset the negatives from the
lowered exports and some of the fiscal issues, Poland could come
out relatively unscathed (Poland: A Better Eastern Europe
ETF?).
Further evidence of the improving economic outlook going forward
is the country’s reduction in budget deficit and stabilizing
government debt. The upgrade of the debt rating outlook by Fitch
from stable to positive bears testimony to the same.
The budget deficit narrowed by about 4.5 percentage points of
gross domestic product since 2010 to an estimated 3.4% last year,
based on European Union standards, according to Fitch. It expects
the gap to shrink to 3.2% this year and 2.7% in 2014.
Slower growth notwithstanding, Poland still appears to be a
preferred location for investors in Central-Eastern Europe. The
economic strength foreseen in the second half of 2013 could thus
boost equities in the nation and make Poland a solid
play.
Investors looking to capture this strength in the Polish economy
can invest in ETFs tracking the equities of the economy. Below we
have briefly highlighted two of the ETFs that track Poland that an
investor may consider.
iShares MSCI Poland Investable Market Index Fund
(EPOL)
Investors seeking a broad exposure to the Polish equity market
might find EPOL an interesting pick.
The product focuses largely on the large cap segment of the
Polish market and holds 43 securities in its basket. The majority
of holdings are classified as blend stocks from a style
perspective.
The fund is heavily concentrated in its top 10 holdings with
nearly 68.76% of the total assets. The top three companies combined
to make up for nearly 34.75% share of the portfolio.
From a sector perspective, the product has a certain tilt
towards the financial sector making up 42.5% of the ETF (Financial
ETFs Set to Rally in Earnings Season). Materials and energy sectors
also get double-digit allocation in the fund.
With AUM of $164.3 million, the product charges 60 bps in fees
per year from investors. Volume is quite good, trading in more than
3 million shares per day, suggesting a tight bid ask spread. The
ETF has generated outstanding returns of over 38.3% in 2012.
However, the year-to-date loss stands at around 7.5% indicating
that the economy had a slow start to the year.
Market Vectors Poland ETF
(PLND)
The fund holds 30 securities in its basket, with a heavy focus
on the top 10 holdings that account for about 59.47% of the assets.
The top three companies take away more than 20% of the
holdings.
In terms of holdings, financials consists of more than one-third
of the holdings followed by double-digit weightings to energy
(16.6%), materials (14.6%), and utilities (11.3%). The ETF has
total assets of $30.7 million. The fund charges a fee of 60 basis
points annually.
PLND has generated a return of 13.64% over a period of one year
while the year-to-date loss stands at 5.3% (Best and Worst ETFs to
Start the Year).
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ISHARS-MS POLND (EPOL): ETF Research Reports
MKT VEC-POLAND (PLND): ETF Research Reports
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